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No-Spend Month, and Recover From Credit Damage

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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode starts with a conversation about how to do a no-spend month that will work for you.

Then we pivot to this week’s money question from a listener’s text message:

“Hi, NerdWallet. I have been binging your podcasts this weekend! Thank you for churning out so much helpful information.

“My question: I filed for bankruptcy in July 2020. I have been working so hard to increase my credit, stay out of debt, and get in a better financial position.

“I was under the impression that after two years, the bankruptcy mark on my credit report would not be as ‘visible.’

“It is so challenging being denied auto loans, credit cards, and apartment leases! Do you have any tips for me or do I just have to carry this burden around for another five to seven years? 

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Our take on no-spend months

A no-spend month, when you avoid spending money on nonessentials, is what you make of it. Before you commit to the challenge, think about what you want from it. You can focus on changing your spending habits, saving some money — or both. Give yourself some allowances, too. Maybe you’ll meet some friends for happy hour but skip that second cocktail or the appetizer. And find a way to track what you do and don’t spend money on. The Notes app on your phone can be a convenient way to jot down what you want to spend money on throughout the month and how much you’ve saved.

Consider asking a friend to join you for the no-spend-month challenge. A trusted confidant can help keep you accountable as the days go on and you feel tempted to buy things you said you wouldn’t. They can also be your cheerleader in moments when you stick to the rules you set for yourself. If you don’t have a friend to support you through the no-spend challenge, the Smart Money podcast crew is here for you. Share your progress with us by emailing [email protected] or by texting us or leaving us a voicemail on the Nerd hotline at 901-730-6373.

Our take on recovering from credit damage

When your credit takes a hit — whether from a bankruptcy filing or late payment — it can take years to fully recover. The negative mark will linger on your credit reports for between seven and 10 years, depending on what happened. Once the clock has run out, these marks should automatically drop off your credit reports.

But you can take steps to rebuild your credit scores in the meantime. To start, make every payment on time because on-time payments are the single largest factor that influences your credit scores. Also, try to keep your credit utilization below 30%, meaning that you are using less than 30% of your available credit. Credit-builder loans and secured cards can also help you restore your credit over time.

If you have a hard time qualifying for a line of credit or getting approved for an apartment because of your credit history, think about enlisting the help of a trusted family member or friend to co-sign with you. Know that many people will be wary of putting their credit on the line, though.

Our tips

  1. Know what you’re dealing with: Negative marks on your credit report can linger for many years, but their impact on your score will fade over time.
  2. Go the extra mile: To get approved for a loan or an apartment after filing for bankruptcy, you might need to work directly with a potential creditor or landlord. And maybe rope in a co-signer, too.
  3. Follow best practices: To restore your credit after a big hit, you might want to use a secured credit card or credit-builder loan. And make all payments on time.

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

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