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How to Build Credit After Bankruptcy

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Filing for bankruptcy comes with a serious credit score sting. And while bankruptcy is a last-resort financial move, it does come with a potential light at the end of the tunnel. If you follow through with financial responsibility after a bankruptcy, you can find yourself in a better credit situation in the long run. Find out more about how to build credit after bankruptcy below.

How to Rebuild Credit After Bankruptcy

If you’re in the middle of or just coming out of bankruptcy, you know how complicated debt, credit and other financial matters can get. Don’t worry—while filing for bankruptcy can affect your credit, you can improve your credit if you’re careful.

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    Once you have a good picture of your credit score, you can start working toward rebuilding credit after bankruptcy. Focus on keeping your accounts current and not taking on more debt that you can’t afford.

    Quick Steps to Rebuild Credit After Bankruptcy

    Keep in mind that what helps you rebuild your credit score might not work for someone else. It depends on a lot—your financial situation, your current credit score, your goals, etc. But there are a few general steps you can take to get your score back in shape:

    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 history.
    3. Don’t take on additional debts or loans unless you’re sure 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 Credit After a Bankruptcy

    Looking for a more in-depth plan to help bump up your credit score? Here’s a breakdown of each step, plus a little extra information to keep in mind.

    1. Monitor Your Credit Closely

    Monitoring your credit following the bankruptcy process is critical. You can track your progress to see if your efforts are having a positive effect on your credit. If you see any incorrect information in your report, take steps to report and address it. You don’t want your score to go 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 might be lower than you’d like until your bankruptcy is discharged. However, if you’re making payments on time and keeping your credit utilization low, you might start seeing an improvement sooner than you thought.

    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 effect. However, you can take steps to increase your credit score while the bankruptcy is still showing up, such as lowering debt and making consistent, on-time payments.

    2. Consider a Secured Credit Card or a Retail Card

    How long do you have to wait before you can get a credit card after bankruptcy? 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 a traditional credit card. However, opening a secured card or getting a retail credit card could be an option.

    If you’re currently in a Chapter 13 bankruptcy, consult your attorney before you apply for a card. There are some limitations on what type of debt or credit you can take on while you’re in the repayment portion of a Chapter 13 bankruptcy. You might need permission from the court first.

    Secured Credit Cards

    A secured credit card requires a deposit to secure the original line of credit. The credit limit on a secured card is typically 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 starts at $271.

    To use your secure credit card, and possibly raise your credit score, only make small purchases and pay the account on time every month. It’s important to keep your balance low, which means carrying a balance that’s less than around 15% of your credit line.

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    Make sure to choose a secured card from a company that reports to all three major credit bureaus. This way, your on-time payments get reported on your credit reports, maximizing your credit rebuilding efforts.

    Retail Cards

    Retail cards and department store cards sometimes have relatively lenient credit approval requirements. Once you have several months of payments with a secured card behind you, you might qualify for a retail card even after a bankruptcy. Retail cards have higher interest rates, but a couple of small charges a month combined with on-time payments can help you reboot your credit.

    3. Don’t Repeat Past Mistakes

    You might think that filing for bankruptcy equals a clean financial slate, but this isn’t exactly true. Learn from the mistakes that brought you to bankruptcy—if you don’t, you won’t be any better off in the long run. Take an honest look at your spending habits and budget, and figure out where you need to cut back or exercise more self-control.

    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. Having more than one type of account can help you positively impact your credit score.

    A Self Lender Credit Builder Account is another 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. However, Self Lender reports your timely payments to all three credit bureaus to help you rebuild your credit after bankruptcy.

    Building Credit After Bankruptcy is Possible—But Be Careful

    Simply following the steps above isn’t a guaranteed way to build your credit score. It’s important to be responsible—make your payments on time, don’t open a new credit line that you don’t necessarily need and make smart financial decisions.

    For an overview and explanation of your credit standing after bankruptcy, check out your free Credit Report Card. It provides a look at your credit scores and helps you track the areas of your credit that are improving—or not—so you can understand how to best 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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