Filing for bankruptcy can leave you with very few possessions and without a clear way forward. Once your debt is settled, you are no longer responsible for paying it, but in exchange, you are essentially having to start your financial life over. To make this new phase even more daunting, filing for bankruptcy will negatively affect your credit history for up to ten years after your remaining debt is discharged. But just because you have a bankruptcy on your credit history doesn’t mean you will have to wait ten years to apply for a loan again. There are some financial resources designed specifically for those looking to build good credit.
It’s right there in the name; credit-building loans are specifically designed for people looking for a low-risk way to build credit. This type of loan is the exact inverse of a traditional loan. You make loan payments each month for a certain amount of time, and once all the payments are made, the lender transfers you the lump sum of money. for example, a borrower who agrees to a 5-year $10,000 loan would make 60 payments towards that loan. After the last payment, they would receive the $10,000. This helps those with poor credit histories in multiple ways:
- It helps build the habit of making consistent payments
- It builds a history of on-time payments
- It is extremely low-risk, making them easy to apply for
Security-Backed Credit Cards
Credit cards are usually the last thing someone with poor financial history needs. But not having access to the flexibility that credit cards afford can be extremely inconvenient. Applying for a security-backed credit card is an excellent way to give yourself a bit more flexibility in your finances while also building a positive credit history. These are also very low-risk, making them easy to apply for. Unlike normal credit cards, which come with a pre-assigned but flexible credit limit, you are required to make a security deposit upfront. This deposit acts as your credit limit, meaning that you have very little room to rack up excessive amounts of debt.
Finding the resources to start rebuilding your credit history can start you down the path to financial freedom while also forming responsible habits that will prevent you from sinking right back into debt.
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