Contrary to what many people think, bankruptcy can sometimes be the best way to improve your credit score if it has been brought down by an inability to pay your debts.
If you decide to file bankruptcy, there are some steps you can take to improve your credit score. By following these steps, I have seen clients improve their credit score by more than 100 points within a year of filing Chapter 7 bankruptcy.
- Pay your bills on time. Late payments can significantly affect your credit report.
- Keep balances low on your lines of credit.
- Don’t open lines of credit unnecessarily. You should only take out credit when you need it for a purchase, not because you think it will improve your credit score. Limiting the lines of credit you have will also help you manage your finances.
- Don’t transfer your credit balances. Instead, pay of your credit cards. Owing the same amount, but having fewer credit accounts can also hurt your credit score.
If your credit score has been significantly damaged because of accounts being charged off or in collections, a high debt-to-income ratio, or a high debt-to-credit ratio, bankruptcy might be your best option for improving your score.
For more information on how to improve your credit score, see: http://www.experian.com/credit-education/improve-credit-score.html