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Life after bankruptcy: Building credit and savings

This week on our blog is devoted to "life after bankruptcy." Today's focus will be on rebuilding credit and establishing emergency savings.

Filing for bankruptcy provides Wisconsin residents with a major sense of relief. But after taking solace in the fact that their debts have been forgiven, individuals who have filed for bankruptcy protection know that they will need to begin working at rebuilding their credit and establishing an emergency savings fund to prevent another financial crisis in the future.

Rebuilding credit can start out difficult as it is often hard to qualify for credit cards or loans shortly after a Chapter 7 bankruptcy. However, one of the best ways to start building credit is by opening a secured credit card account and then begin making routine, timely payments.

A “secured” credit account means that you will be required to put down a deposit on the account and then the bank or lender will provide you with a credit card. Usually, the card’s line of credit is 50 percent to 100 percent of the deposit, and the bank will likely pay you interest on your deposit, according to the Federal Trade Commission.

Bankruptcy experts advise steering away from taking out loans until your credit score has increased and you can qualify for a lower interest rate. According to the president of a consumer credit counseling service in Florida, it’s smart to wait until your credit score is 650 or above before applying for a loan, which will result in a “decent rate.”

The president also told Bankrate.com that after bankruptcy is a good time to begin saving money in case of an emergency. She said that following bankruptcy, individuals are often “in a better position to save because they've eliminated their debt and they need to plan for their financial future again.”

Check back tomorrow for more information on life after bankruptcy, including tips on when and how to qualify for a car loan.

Source: Bankrate.com, “Bankruptcy timeline: Rebuilding credit,” Brigitte Yuille, June 2, 2014

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