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Tips for Rebuilding Credit After Bankruptcy

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Rebuilding credit after bankruptcy

If you’ve recently filed for bankruptcy, you might still feel the sting of losing whatever credit standing you had, but there is hope. When you’re working to rebuilding your credit after bankruptcy, you need to make full payments on time and focus on improving your credit.

Not sure where to start? Don’t worry—we’ve gathered everything you need to know about how filing for bankruptcy affects your credit.

How to Rebuilding Credit After Bankruptcy

To start rebuilding credit after bankruptcy, you need to focus on keeping your accounts current and not taking on more debt that you can’t afford. Here are some steps to follow.

  1. Keep all accounts current and check your credit report and score frequently to ensure everything is accurate.
  2. Get a secured credit card if you don’t have a credit card already, so you can start rebuilding your credit.
  3. Don’t take on any additional debts or loans unless you are sure that the payments, including the higher interest amount you’ll likely pay with a bankruptcy on your report, are well within your budget.

Step-by-Step Guide to Rebuilding Your Credit After a Bankruptcy

While the steps above are a great way to start getting your credit back on track after you had to file for bankruptcy, there’s a little more detail that goes into each one. Here’s a breakdown of each step and some additional considerations as you start your credit repair journey.

1. 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. If you see any incorrect information in your report, take steps immediately to report and address it so you don’t risk your score going farther down because of an error.

How Long Does It Take to Rebuild Credit After Chapter 13?

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, but if you’re making payments on time and keeping your credit utilization low, you could start seeing your score go up in a few months.

Will My Credit Score Increase After a Bankruptcy Discharge?

A discharged bankruptcy isn’t the same as a bankruptcy that has fallen off your credit report. As long as the bankruptcy appears on your report, it will have a negative affect. However, you can take steps to increase your credit score while the bankruptcy is still on, thereby lowering high debt amounts and making payments on time consistently.

How Much Will My Credit Score Increase After Chapter 7 Falls Off?

How much your credit score will increase when a bankruptcy falls off depends on your individual credit history. Many people get a bump of between 50 and 100 points.

2. Consider a Secured Credit Card or a Retail Card

How long do you have to wait before you can get a credit card? Well, it depends. If you have a lot of other negatives on your report or you started off with an already poor score, it could put you out of the running for any traditional credit card. However, opening a secured card or getting a retail credit card can be an option for some.

Secured Credit Card

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 bankruptcy, use your secured card to make small purchases and pay the account on time every month. It’s also important to keep your balance low, which means using less than 15% of your credit line each month.

Make sure to 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.

Retail Cards

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. Retail cards do have higher credit card interest rates, but a couple of small charges a month combined with on-time payments can help you reboot your credit and build a positive payment history after a bankruptcy.

3. Don’t Repeat Past Mistakes

It’s easy to think of filing for bankruptcy as getting a clean financial slate, and to some degree, this is true. However, if you don’t learn from the mistakes that got you to that place and take steps to improve your financial health, you won’t be any better off over the long term. Take an honest look at your spending habits and budget and figure out where you need to cut back or exercise more self-control in the future.

4. 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. A small personal loan is one way to diversify. The loan money can be used for anything, including home repairs, investing and making your payments on time. This helps you build a better credit score and financial standing in the process.

A Self Lender Credit Builder Account is another easy way to build credit, and you can get one with poor or no credit history. This is 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 small administration fee and pick how much to put into the account each month. 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, so you won’t actually make any money on it, but this can offset some of the interest hit. Self Lender reports your timely payments to all three credit bureaus to help you build up your score.

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.

 


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  • tech

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

  • http://www.Credit.com/ 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 Credit.com that shows all the states…
    http://www.credit.com/debt/statutes-of-limitations/?utm_source=Yahoo&utm_medium=content&utm_content=IB_5&utm_campaign=debt_collector_83M

  • 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.

    • http://www.Credit.com/ 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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