Why Would I Want Credit After Bankruptcy?

Understandably, many people have an aversion to credit after they have filed for bankruptcy protection. Many think that by sticking to cash, they can't get into trouble again; a very reasonable position.

It is true that you do not want to risk making late payments, or rack up large credit card balanaces after filing for bankruptcy. If you have a bankruptcy on your credit report along with new delinquent items, the effect on your credit score will be devastating. You will also no longer have the safety net of discharging those debts through bankruptcy for quite some time. Your financial options are limited should you find yourself in a financial bind.

What's important to remember is that having credit, and having credit problems do not go hand in hand. Learning to manage your finances wisely, including credit, are the most important parts of your financial recovery. Cash is a great way to handle your day-to-day expenses and will help keep things in perspective as you create your new budget.

Then Why are We Even Talking about Credit after Bankruptcy?

This is a great question. By now, you know how risky credit can be, and you know you will most likely be paying higher interest rates shortly after bankruptcy. You might be wondering why you would want to apply for new credit at all.

The reality is, in our society certain purchases cannot be made without it. It is highly unlikely you would be able to purchase a home with cash. Even buying a car would be hard to do without credit. You may feel after bankruptcy that avoiding credit is the right thing to do until you really need it. However, it is unlikely that lenders will cooperate with your plan.

You Need a Credit History to Get Credit

Waiting a few years to obtain credit after a bankruptcy might not be the best optin. If you are planning to finance a house or buy a car once you have re-established yourself financially, you might be surprised when you try to get those loans. If you wait that long, lenders will have no record of your newly stable finances; cash doesn't provide such a record. Reputable lenders will want to see that you have demonstrated good financial management after your bankruptcy; if they don't see any activity at all, they may assume you are a greater risk, because all they will see on your credit report is the bankruptcy!

While you may have made great decisions while only using cash, lenders won't see any existence of it, not to mention your credit score will only reflect the bankruptcy on your report.

To avoid these potential problems, you will want to immediately begin to rebuild your credit.This will show that you are a good candidate for home or car financing.

It is also imperative you know how to avoid these post-bankruptcy credit pitfalls.