Building Credit After Bankruptcy (Because It IS Possible)
As we all know, bankruptcy is one of the direst financial circumstances for any individual—especially business owners.
It can feel like a public statement that you’ve allowed your debt to so far outrun available cash, that paying the amount owed is insurmountable. It’s pretty much like you’re caught between a rock and a hard place, except it’s also 20 degrees and snowing.
Life happens, however.
Sometimes, cash flow can be interrupted by a natural disaster, a global economic downturn, or other forces beyond your control. Sales can fall off, business can wither, and seemingly before you know it, you are faced with crushing obligations (without the capital).
Bankruptcy can sometimes be the only way to give yourself—and your business—a fresh financial start.
Record of a Chapter 7 bankruptcy remains on your credit report for 10 years, and all other bankruptcy references stay on your report for 7 years. That’s a sizeable chunk of time.
And while most lenders tend to not accept applications from businesses that have filed for bankruptcy within the past three to seven years, on the flip side, this form of a required respite provides ample time for you to regain your fiscal footing.
Should you find yourself recovering from this low point, you can reestablish your financial reputation by concentrating on building credit after bankruptcy. This way when the time does come for you to apply for a small business loan, you’re likely to receive much more favorable terms.
Establish new credit card accounts and pay them on time
This can even include retail cards and even gas cards.
A history of timely payments is a powerful way to tackle building credit after bankruptcy.
It might seem unwise to get back into revolving credit, but one approach is to charge a limited amount—say, $50 per month—and pay it all off, on or before the due date.
Of course, if you cannot afford such charges, do not adopt this strategy.
Monitor your credit score
Although much of what’s negative on your report will arise from fact, it’s always a good idea to keep an eye on the document; incorrect information is not uncommon on a credit report.
Once every twelve months, you can access your free credit report for each of the major bureaus from Annual Credit Report.
Credit Karma and Credit Sesame will give you access to your credit score for free, typically in return for seeing offers from their advertising partners.
Regular review might also prove encouraging, since your score will already be on the rise because of any discharged debt resulting from the bankruptcy.
Watching your score improve might help you stay motivated, encouraging you to stay on track with building credit after bankruptcy.
Separate your business and personal credit
Separating your business credit score and personal credit score helps safeguard one from problems with the other.
This may mean establishing a separate bank account and credit card for your business. Asking new business creditors to make regular reports to credit agencies might also prove useful. Pristine payment habits and regular monitoring will benefit both types of credit.
Financing sources may prove friendlier if you have assets to back up any new loan request. In addition, a solid business plan and a letter of explanation as to the reasons for the bankruptcy can boost credibility, and possibly, your chance of approval.
Filing for bankruptcy is a difficult experience, and building credit after bankruptcy can be an even more daunting.
However, with a well-planned recovery strategy, and your eye on the prize, you will be able to get your credit back in tip-top shape.