When we say that bankruptcy provides you with a new beginning, it’s an expression that covers several aspects of your post-discharge picture. While you do enjoy the benefit of a clean financial slate, you’re also having to start anew with lenders, some of which will be willing to help you rebuild credit while others may shy away (at least at first). This blog examines how your relationship with new and former lenders will change in the immediate wake of the bankruptcy and a while after.
You May Only Be Offered Secured Products
Some lenders may be willing to help you get credit and rebuild your credit score by offering secured products to you. Examples include:
- Secured loans: There are two general varieties of secured loan. One involves you borrowing against money in your account, which will be inaccessible to you until the loan is paid off. With the second, money is placed in a savings account and made available only after you make the required payments. Your payment history is reported to the credit bureaus.
- Secured credit card: After paying a deposit, you receive a credit card with a limit that is usually equivalent to the deposit amount. Although there tend to be annual fees and high-interest rates involved, secured cards can help repair your credit until you are eligible for an unsecured one with better terms.
You May Be Asked For a Co-Signer
Lenders may ask you to find a friend or family member with good credit who would be willing to co-sign for you. Remember that this is an important favor and responsibility on both sides. The other person is risking their credit history to help you and will be liable for repaying the loan if you default. Be sure that you are able to make the required payments before potentially damaging your relationship with that person.
You May Be Subjected to Higher Interest Rates
If a lender does offer you secured or unsecured credit, you can count on paying higher interest rates and even annual fees. Known as risk-based pricing, it occurs when lenders offer high-interest rates or different loan terms to consumers who may have a higher risk of defaulting. This category includes discharged bankrupts and those with low credit scores.
Although a bankruptcy will remain on your credit report for around 10 years, its negative impact will recede with time, especially if you obtain secure or co-signed credit products and gradually replace the negative notations on your credit report with positive ones. When your recent credit history presents you as a good risk at last, your relationship with lenders will improve and limitations and restrictions on borrowing will lift.
When you’re overwhelmed by a debt load that damages your credit score and leaves you awake at night, bankruptcy can give you a clean financial start. With careful work and a willingness to accept initial limitations, you can rebuild and begin again. For more information about how bankruptcy can benefit you at this point in your life, contact the Law Offices of B. David Sisson for a no-obligation consultation today.