The dreaded word bankruptcy has carried a severely negative connotation for far too long. The truth is many people end up filing for bankruptcy. Hundreds of thousands of bankruptcies are filed by businesses and individuals each year, so don’t think you’re alone if you’ve had to make this difficult financial decision.
An unexpected medical emergency or other mishap can put you too far behind on your finances to catch up. Financial hardships are a part of life, and bankruptcy is one of the tools available to help with them.
Creditors understand this, so the sooner you can show financial stability following a bankruptcy the sooner you can begin borrowing money again. That includes getting a personal loan after bankruptcy.
Bankruptcy Can Feel Like a Fresh Financial Start
You can think of bankruptcy as a bit of a fresh start. Now that your debt has been paid off or wiped away you should have a new sense of hope and freedom. Yes, things will be more difficult for a while, but you can use this time to build healthy personal finance habits.
A bankruptcy will appear as a black mark on your credit report for up to a decade but will subside in significance as time goes by and you rebuild your credit.
In the beginning, many lenders, insurers, and other finance companies that see an applicant with bankruptcy on their credit report will be far less likely to do business with you. If they decide to do business with you, it often comes with strings attached such as a higher interest rate, origination fee, down payment, or the need for a well-qualified cosigner. They also may even need you to put up collateral.
But that will change.
Rebuilding Your Credit After Bankruptcy
Rebuilding your credit after your bankruptcy has been discharged is a bit of a catch-22. You must rebuild your credit to fully recover from bankruptcy and get access to the best personal loans, credit cards, mortgages, and other financial products. At the same time, bankruptcy itself makes building credit extremely difficult.
However, it’s not impossible.
Before embarking on your credit-rebuilding journey, be sure you have strong employment or other income, and ensure your finances are in order before attempting to borrow money again. Stay up to date with payments such as your mortgage, auto loan, or other financial obligations you still have. Keep paying those bills on time each month along with any new accounts.
Depending on the type of bankruptcy you filed, you won’t be able to file again for at least two years. Most likely eight. But let’s try to avoid going down that road altogether.
Depending on your situation, you’ll probably want to obtain new credit as soon as possible. To start, it won’t be pretty, but there are options. Here are a few ways to get the ball rolling.
Get a Secured Credit Card to Rebuild Credit Quickly
Before applying for a traditional personal loan you’ll need to re-establish a positive credit history. Companies need to know you can handle credit responsibly. It will take some time, but once you have re-established a history of on-time payments your credit score will improve and companies will take you more seriously.
One of the quickest ways to start rebuilding your credit is by applying for a secured credit card. These credit cards function like unsecured credit cards but usually come with smaller credit lines, fewer rewards, higher fees, and require a refundable security deposit of a few hundred dollars. They are mostly used for rebuilding credit and are virtually guaranteed.
The best secured credit cards will automatically graduate your account to an unsecured card with a higher credit limit and better terms after six months or more of on-time payments.
I recommend obtaining a secured card like this with a low or no annual fee then making a purchase with it every month for at least six and paying the balance off at the end of each billing cycle.
Generally, it takes at least a year of consistent on-time payments towards a secured credit card or other credit account following a bankruptcy before companies will consider you for a personal loan. Then you can start with online lending platforms such as Upstart, Upgrade, and Universal Credit.
You can view details about many of these companies and compare other offers on our low APR personal loans page.
Applying for Bad Credit Personal Loans
Consider starting with something smaller such as a $6,000 personal loan then paying it off quickly to enhance your credit report and score. It will be easier to get approved for something well within your budget. Having an installment loan on your credit report in addition to revolving credit accounts will skyrocket your score. Then you can apply for something higher, such as a $15,000 loan, a $50,000 loan, or more.
– Bad Credit Loan Specialists
Even after you have partially rebuilt your credit you may still find it difficult to acquire a personal loan. If you’re having trouble getting approved through one of the aforementioned lenders, you could try working with a company that specializes in connecting people with bad credit loans. Their terms might not be ideal, but they may be able to help you with your needs.
– Short-Term Loans
If you’re desperate and need cash extremely fast, you could consider a short-term loan such as a cash advance or payday loan. These types of loans are not recommended but they can fill a need. Before you go in this direction, however, consider getting an advance of your paycheck instead. That way you won’t be charged an astronomical fee.
Furthermore, cash advances and payday loans won’t likely boost your credit score, but will surely affect it negatively if you fail to pay the money back.
Staying Positive After Filing Bankruptcy
My final piece of advice is to try to stay positive. With the right attitude and good financial habits, anyone can rebuild their credit after bankruptcy – given the opportunity. Stay patient and keep looking forward. Time heals all wounds, as they say. Understand that you may get rejected for new credit along the way, but you can choose to harness that rejection, learn from it, and propel yourself forward.
As long as you establish what credit you can and stay current with your monthly payments, access to personal loans and other quality lines of credit will become available again. By being strategic and doing it responsibly, doors will open faster than you might think.