Bankruptcy can have a significant impact on all aspects of your life, and these may last well beyond the three years and 1-day bankruptcy period. Once your bankruptcy has come to an end, rebuilding your credit score and improving your financial situation may seem to be an impossible task. Although your options may be limited, it is possible to take out loans and improve your credit after your bankruptcy.
Credit reporting agencies, such as Equifax, Illion and Experian, maintain credit scores and keep a record of your bankruptcy for either five years from the date you became bankrupt or two years from when your bankruptcy ends (whichever is later). Lenders will be able to obtain your credit report, which may affect your chances of being approved for a loan. Additionally, your name will permanently be on the National Personal Insolvency Index, which is a public register which contains your personal details, and status and period of your bankruptcy.
Once you are declared as a discharged bankrupt, you will be able to apply for loans and other credit products. Most major lenders will not approve a loan for someone who is a discharged bankrupt or previously bankrupt as they see it as a high risk. There are still options, however, for future lending.
Tips for lending after bankruptcy
- Applying for credit will be recorded on your credit file, so it’s best to only apply to one lender at a time and only to lenders who offer non-conforming loans and other options for people with poor credit scores. Rejected applications don’t look good on your record, so it’s best not to apply for a loan straight after your bankruptcy period.
- Non-conforming loans are a type of loan offered to people who don’t meet the standard criteria for loans, such as those with low credit scores or who have previously been bankrupt. A range of lenders offer these types of loans, so it’s worth shopping around to find the best deal.
- If you have previously been bankrupt, lenders will generally set a higher interest rate, and higher deposits and fees to compensate for the risk associated. It is therefore recommended you save as much cash as you can prior to taking out a loan and stick to a spending budget to keep repayments on track.
- Spend time researching the different loans and lenders available to you. Not all lenders are credible or good options for you and may put you in a worse financial position if you find yourself not being able to keep up with the repayments. Seek advice on the terms and conditions of the loan before taking it out, so you know the details of what you’re signing up for.
- Start with a small loan that can be repaid easier and faster. Once you have proven you can repay a loan, mainstream lenders such as the major banks are more likely to look favourably upon your application for a larger loan in the future.