The average American household relies on consumer credit for numerous purposes. Many people finance vehicle and home purchases. Countless households require credit cards to cover their bills from month to month.
One of the big concerns people have about filing for bankruptcy is how it typically closes most revolving lines of credit and makes it harder for people to secure larger financial instruments, like vehicle loans or mortgages.
If you have held off on filing for bankruptcy because you worry about balancing your budget without credit cards or how you will buy your next vehicle, it’s important to understand that you will become eligible for consumer credit again after your discharge.
What happens to your credit after bankruptcy?
When you first file for bankruptcy, several things will happen. You will have an automatic stay that prevents collection activity and leads to the dismissal of pending debt-related lawsuits. Your lenders will likely close or freeze your revolving lines of credit as soon as they find out that you filed, and your credit score will take a notable dip when you file and after your discharge.
Thankfully, you can begin rebuilding your credit almost immediately. Credit card companies may start making you offers for secured lines of credit with high interest rates within a few months of your discharge. Getting one or two credit cards and paying them off in full every month will lead to better credit card offers and will slowly increase your credit score.
By the time you are two or three years out from your bankruptcy, you may be able to qualify for mortgages and car loans. The more credit you use responsibly and the longer it has been since your discharge, the more your credit score will increase. When the record of your bankruptcy discharge comes off your credit report, you could potentially have a score that is higher than you had before filing and multiple lines of consumer credit, ranging from credit cards to mortgages.
Use what you learned to your benefit
Consumer bankruptcy filings require credit counseling and debt education. You can take what you will learn from those courses and apply it as you start rebuilding your credit. Being more responsible with what lines of credit you choose and how you pay them will improve your overall financial health and make you eligible for better credit cards and larger lines of consumer credit.
Learning more about how to rebuild your life after bankruptcy can help you see the value in personal bankruptcy.