After Bankruptcy, Rebuild Your Credit — Cautiously

In the weeks and months after filing for bankruptcy, you may be surprised to find yourself aggressively pursued by lenders offering you credit. While credit cards can be a vital part of rebuilding your credit score after you discharge debt through bankruptcy, it is best to proceed with caution.

Careful Borrowing Is Key

Some credit card companies and other lenders seek out people who they think will rack up large debts, since that also means paying a lot of interest. Therefore, just because you qualify for a new line of credit does not mean you can afford it.

An essential part of rebuilding your credit score is demonstrating that you can use credit responsibly. Therefore, you should not open a new line of credit until you know you will be able to make the payments. Avoid lenders who prey on those with bad credit, often with slogans such as "Bad Credit? No problem!" since the loans they offer tend to come on very bad terms. The high interest rates and fees associated with these loans can make it very difficult to keep up with the payments.

Once you begin using credit again, resist the temptation to make only the minimum payments each month. While this may seem like an attractive option in the short term, especially when you are struggling to make ends meet, it is counterproductive in the long run. Because minimum payments usually cover little more than the monthly interest charge, you will end up paying the balance off very slowly, if at all, causing you to pay far more over the life of the loan.

Creating a Fresh Start Through Bankruptcy

While there is no getting around the fact that bankruptcy is generally viewed as a negative credit event that can remain on your credit report for up to 10 years, bankruptcy can also provide you with an opportunity to begin rebuilding your credit score from scratch - something that may be impossible to do while still burdened by unmanageable debt.

Combined with careful planning and diligent money management, filing for bankruptcy can be an important step toward better financial health. If you are considering bankruptcy in Tennessee, consult with an experienced personal bankruptcy lawyer to discuss your legal options.