Bankruptcy is a legal status of a person or other entity who fails to repay debts to creditors. In most of the cases, bankruptcy is imposed by a court order or sometimes initiated by the debtor. The situation of bankruptcy arises when someone suffers a huge loss in business or any other occupation.
However, when a person files for bankruptcy, his complete financial background gets affected. But the major problem arises with the credit score, which gets affected the most. The CIBIL score instantaneously decreases to a lower level due to which it almost becomes impossible to get further credit. And the term ‘bankruptcy’ remains on your credit report for up to 10 years.
So now if one wants to avail any loan, a bad credit score will leave the person in haywire. But the good news is that one can still rebuild his/her credit score after bankruptcy. With proper financial habits, responsibly taking care of expenses and small savings, it is possible to attain a credit score more than 700.
So let’s take a look at few measures with which you can start fixing your CIBIL score:
Habit of maintaining solid finance
The first and foremost way to rebuild credit score is consistency. Start paying your monthly bills on time. Don’t overdue any amount which may become a burden in later stages. In order to have a clear credit report, you have to take care of paying behavior for at least seven years.
Review credit report
It’s important to review you CIBIL report every month. Check for errors and inconsistencies. In case you find any discrepancies, apply for correction instantaneously. You can use sample dispute form and mail it CIBIL. Include copies of documents that prove there is an error in the report.
Create a budget
Proper budgeting skills are the first step in building strong financial habits that will not only help you rebuild credit but also help you in maintaining good credit and prevent financial hardship. The golden rule of budgeting is to never spend more than you make. It is also important to reduce non-essential expenses as much as possible.
Apply for a secured credit card
A secured credit card is given against a fixed deposit. However, the limit of such credit cards is a certain percentage of the amount that you have kept as fixed deposit. Once you have the credit card, make sure that you make all the payments on time at the same time spend regularly from the card and stay within your credit limit. You must constantly use the credit card to ensure that your credit score increases.
Small savings can do wonders
Small cushion savings are the best way to enhance credit score. Such savings help in emergency bill payments. Most financial experts recommend having enough money in savings to cover six months of expenses.
Don’t close credit accounts
Staying off from the credit cards doesn’t increase your credit score. On the other hand, if you are closing a credit card, you will be reducing the amount of credit that is available to you and it further decreases your credit score. Choose a credit card that will not charge you a high annual fee and keep paying it to retain the credit that is available to you.
So follow these simple steps to maintain your credit score as well as finances. Learn from your previous mistakes and avoid them.