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How to Build Your Credit After Bankruptcy

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If you’ve recently filed for bankruptcy, you might still be feeling the sting of losing whatever credit standing you had. Keep your chin up. There is hope. The most important thing you can do right now to rebuild your credit after bankruptcy is to make your bankruptcy payments in full and on time and stay focused on rebuilding your credit score.

Bankruptcy can stay on your credit report for up to 10 years depending on the type of bankruptcy you file. There’s a good chance your credit score will be lower than you’d like until your bankruptcy is discharged and you’ve taken the necessary steps to rebuild your credit.

For an overview and explanation of your credit standing after bankruptcy, check out your free credit report snapshot. It gives you a free look at your credit scores, plus it helps you track the areas of your credit that are improving and helps you understand how to rebuild credit after bankruptcy.

How to Rebuild Credit After Bankruptcy with a Secured Card

secured card is a good way to go if you’re coming out of bankruptcy. Keep in mind that until your bankruptcy is discharged, you may still be turned down, even for a secured card.

That doesn’t mean it’s not possible to get a credit card before your bankruptcy is discharged. Your post-bankruptcy credit card options will, however, be limited and will usually require high annual fees and high annual percentage rates.

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How a Secured Card Helps Your Credit

With a secured card, you make a deposit into a savings account, which then secures a line of credit. The credit limit on a secured card is the amount of the deposit minus any fees. For example, if you make a $300 deposit on a secured card with an annual fee of $29, your credit limit will be $271.

  • To optimize rebuilding your credit after a bankruptcy:
  • Use your secured card to make small purchases.
  • Pay the account on time each, every month.
  • Keep your balance low; target using just 10 to 15% of your credit line each month.

Choose a secured card that reports to all three major credit bureaus. This way, your on-time payments get reported on your credit reports from each of the credit bureaus, which maximizes your credit rebuilding efforts.

Rebuild Your Credit with a Retail Card

Retail cards and department store cards have more lenient credit requirements. Once you have several months of payments with a secured card behind you, you may be able to qualify for a retail card after a bankruptcy.

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Retail cards do have higher credit card interest rates, which makes it important that you pay the account in full each month.

A couple of small charges a month combined with on-time payments will help you reboot your credit and build a positive payment history after a bankruptcy. Why? Because your payment history makes up 35% of your credit score, so making small, steady on-time payments is the best way to rebuild your credit after bankruptcy.

Diversify with a Loan or Credit Builder Account

If you’re trying to rebuild your credit after a bankruptcy, the type of credit accounts you have also matter. So, it’s important to not just have credit card accounts, but to also to diversify your credit options.

A small personal loan is one way to diversify. The loan money can be used for anything, including home repairs and for investing. A loan will show that you can pay off the loan while helping you build better credit and financial standing in the process.

Credit Builder Account

A Self Lender Credit Builder Account is another easy way to build credit. And, you can get one with poor or no credit history. It’s not a credit card. It’s essentially a secured-installment loan combined with a CD that has a 12- or 24-month term length. Rather than put down a lump sum into a CD, you’re opening one in installments. You put money in, but can only take it out at the end of the CD term.

For a Self Lender Credit Builder Account, you pay a $9 to $15 administration fee. You pick how much to put into the account each month—$25, $48, $89, or $150. The $25 monthly payment requires a term of 24 months.  All others have a term of 12 months. You pay interest on the account as you would a loan. But you also earn interest on it as a CD. The CD earns interest at a lower rate than what you pay for the loan. See the Self Lender FAQ for details.

What you gain is better credit. Self Lender reports your timely payments to all three credit bureaus—Experian, Equifax, and Trans Union. You build positive credit history, which makes up 35% of your credit score, as a result.

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Monitor Your Credit Closely

Monitoring your credit following the bankruptcy process is critical. Doing so allows you to track your progress and see if any of the steps you’re taking are having a positive effect on your credit score and credit history.

It may not take many months after your bankruptcy to see improvement in your credit score. Maintaining good credit standing, making on-time payments, and keeping utilization down means you might recover in less time than you think.

Take the First Steps

Now that you know what’s involved in how to rebuild credit after bankruptcy, it’s important to take the right steps before you jump back into the credit pool.

First, assess the situation you’re in by checking all of your credit reports to see exactly where you stand. Knowing this information can help you better determine the proper course of action you need to take to begin rebuilding your credit.

Next, check your credit score and verify the accuracy of everything on the credit reports. If you find errors, make corrections to your reports, and then find the right credit to begin to rebuild your credit.

If you take the right steps, are diligent about how you rebuild your credit after a bankruptcy, and make payments on-time, bankruptcy doesn’t have to be a long-term burden. Soon enough your credit score will be strong enough to let you qualify for a better card or loan at lower interest rates.

This article was originally published December 5, 2013, updated February 23, 2017, and has since been updated by another author.

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  • tech

    what’s old school about getting laid off due to outsourcing and h1b visa workers?

  • Gerri Detweiler

    Karina – I am not sure I fully understand your comment but it sounds to me like you defaulted on some credit cards five years ago and the total balance is $43,000. Is that correct? What state do you live in? Did you look into bankruptcy at all?

  • scratch

    D, that’s all well and good for daily purchases. I agree with you. But there are times when a credit card is advisable or even necessary. When you travel, a credit card is a Godsend. When you reserve a hotel room or airline flight or rent a car, the merchant merely puts a hold on the full estimated amount on your credit card. With a debit card, they charge the card the full amount and refund you upon return. When you make a purchase, a credit card will extend the warranty. And there are other reasons to carry a credit card. However, paying off monthly saves all but the annual fee to hold one of these and preserves credit as well.

  • Credit Web

    Great post!! It is a very
    effective article and easy to understand the things with your posts. Thanks,
    I appreciate it. Keep it up and all the best.

  • Wil Banchs

    Using cash and paying off and closing credit accounts does nothing to create or increase your score – as a matter of fact after 6 months of no reporting by a credit issuing agency you have NO SCORE – which hurts you… true – I have no bills anymore and I have no cards – but when I went to check my score – I didn’t have one at all and when I asked to see what my last score from reporting was, they said they didn’t maintain that…
    So in a way getting debt free is a catch-22, if you aren’t under someone’s credit thumb you will not have a positive or a negative score- you just won’t have one period…

  • Wil Banchs

    There are statute of limitations per state on debt collections – most commonly they are 3/6 or 4/4 (years)… some states in the mid-north are longer with 10/10 and 8/10… the first number referring to unsecured debt cards and the second number dealing with contract debt. There is an interactive state map here on that shows all the states…

  • RobinHood84

    Having a credit card on file isn’t a bad thing, just learn from past mistakes to build up your credit score. Also, you ever rented a car, or similar service? They require credit or require a large holding sum.

  • Thomas

    There actually is another way to do this: If available, have you rent payments reported. Also, if your furniture place or your other providers have this already, sign up for that. That is a start towards getting your credit score back up towards its pre-bankruptcy levels.

  • B. Lee

    Due to an unexpected medical emergency we are now $60k in debt and maxed out credit cards to pay for the services after insurance paid its portion. We wiped out $7,500 in savings too. Now we are living paycheck to paycheck. We own a home with about $20k in equity and have done every thing right up to this point. We have pretty good jobs with about $6k a month in income after taxes. With the house payment, utilities and car payment, we payout about $3000 per month,but the additional burden of the medical expenses put us at almost $7k per month we are robbing Peter to pay Paul. Is BK 7 the answer, I don’t know. Any guidance would be helpful.

    • Gerri Detweiler

      I’m sorry to hear this – it must be so difficult for your family. Yes, I would recommend you talk with a consumer bankruptcy attorney to find out whether that’s the best option for you. If it’s not, the attorney may be able to make some recommendations in terms of trying to negotiate settlements on these debts. If you need help finding an attorney, you can visit the website of the National Association of Consumer Bankruptcy Attorneys.

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