Rebuilding Your Credit After Bankruptcy
How to Rebuild Your Credit After Bankruptcy
The primary factor that will help you rebuild your credit after a bankruptcy is showing that you are able to receive small loans and repay them on a timely basis. For instance, if you obtain a secured credit card, use it regularly yet sparingly and pay off the balance every month, you can start to build a good credit record. Secured credit cards require you to deposit funds in advance into the account, and you can charge against the amount you have on account. Secured cards are generally easy to obtain.
After about 12 months of steadily using and paying the balance on a secured credit card or gas card, you will see your credit score start to improve. Within just a couple years of following this practice, you can have a relatively good credit score.
A Chapter 7 bankruptcy stays on your credit report for ten years, but this does not mean that you cannot get a loan during that time. The bankruptcy can impact your score and the interest rate you are able to get, but it doesn’t keep you from getting credit altogether. As you move further away in time from the initial bankruptcy, the less weight a lender will give to the bankruptcy, even while it is still on your report.
Steps to Take After Your Bankruptcy to Rebuild Your Credit
Create a budget – The credit counseling that you completed as part of your bankruptcy provided you training on budgeting, but if not, don’t hesitate to seek help from a credit counseling agency. All nonprofit credit counseling agencies offer free basic consumer help on topics such as budgeting.
Begin to build an emergency fund – Research has shown that as little as $250 in savings for an unexpected expense can protect you from financial stress. I recommend Dave Ramsey’s website that has great information on budgeting and emergency funds.
Check your credit score – There are several ways to get a free credit score, from websites such as NerdWallet. You should track your score monthly and evaluate your progress. You can also request one free credit report every year from each of three main credit bureaus at AnnualCreditReport.com.
- Make timely payments on the debts you kept after the bankruptcy (car loan, mortgage, etc.)
- Avoid changing jobs frequently to avoid periods of gaps of income.
- Maintain a positive income-to-debt ratio.
- Apply for New Credit lines.
- Consider a Cosigner or Becoming an Authorized User on someone else’s account.
- Keep the payments current on all credit cards.
- Make sure that your payments are being reported to all three credit bureaus.