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How to Improve Your Credit Score When Bankrupt

When you’ve filed for bankruptcy, you’ve got the chance to start fresh and draw a line in the sand. Your past is now your past and you can start thinking about all the ways to create positive future pathways. And you can do all that with a little planning.

Bankruptcy is recorded on your credit report and doesn’t budge for five years. During this time, you’ll need to think about what your report might look like after your bankruptcy has been removed. The good things is that you’ll be in control after it’s all said and done.

Think about it this way: in one year, this mark against your report will be a year down already. In six years, there won't even be a mention of it and your report will be clear, provided no defaults occur subsequent to when you became bankrupt.

Why file for bankruptcy in Australia?

The positive thing about taking action like this is that it protects your income to make sure you have enough money behind you to live and pay your financial obligations. This is exactly what you should be taking careful advantage of – there's likely not going to be another opportunity like this.

As soon as the title has been put alongside your name, you can jump into building a positive credit report to acknowledge that you have the ability to be financially responsible in the future. You need to prove this to lenders, and we recommend laying down a few goals for yourself – e.g. across a five-year plan.

Consider aspects like if you want to have a healthy balance of money behind you to pay your utility bills on time and have a buffer in case of an emergency. You may want to save for a better car. Think of whether you would like to save a house deposit or upgrade your furniture. You might even want to consider saving for your retirement fund. All of this has an influence on your credit score and report.

Bankruptcy vs. personal insolvency / debt agreement

Personal insolvency agreements (PIA) and debt agreements have a lot of fine print to them, and bankruptcy actually holds a number of benefits in comparison. Most notably, it ensures you’re wages are protected so you have money when you need to pay bills and you can start rebuilding the credit report you have against your name.

Often, those that head into debt agreements are placed in a difficult position. It can be hard to navigate through this because they have next to no money to live on and need to pay bills that they may not be able to. More often than not, this equates to poor credit score entries being recorded after you entered into the debt agreement.

Choose a lender wisely

Once you've filed, it's recommended to choose a high tier lending firm or bank that you're happy to liaise with for the long term. Talk actively to them about your plans for the future and ask them all the questions you have on hand. Don't leave anything out. Also, be willing to give them any and all information they will need for applications down the track. They need to be your confidant.

Establishing healthy communication with your lender means you’re backing yourself for the future, especially when you have responsibilities to pay off or need to learn more about certain processes. You’ll show your ability to save and earn their trust to help you meet your monthly repayments. It’s like nurturing any other relationship.

Do not apply for every loan

This is important. Applying for all applications across all possible banks can ruin your credit report. It’ll also make sure you can’t secure a loan at all. Additionally, applying to ‘lower tier’ lenders will also wreak havoc on your report, so it’s important to choose ones that are not affiliated with this kind of profile.

Financial activity that’s recorded on your file includes:

  • Loan applications for vehicles and properties
  • Applications for utility connections – such as electricity, telephone, mobile, gas, pay TV etc.
  • Applications for any credit cards, personal loans and store cards.

However, here are some steps you can take without hindering your report:

  • Apply for a debit card
  • Apply to a bank to open a new account
  • Apply for a pre-paid mobile phone.

All of the little things you do now will add up in the future. It pays to take things carefully and strategically in the present time so that you set yourself up for success long term.

We hope this article has assisted you. We are here to help you Understand Bankruptcy. If you would like to discuss your situation give us a call on 1300 794 492 or email hello@understandingbankruptcy.com.au