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.
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. Once you have a good picture of your credit score, you can start working toward rebuilding credit after bankruptcy.
Securing new credit is one of the biggest hurdles to get over in postbankruptcy credit repair, but it’s also one of the most critical steps to rebuilding your credit.
It’s usually harder to get new credit after a chapter 13 or chapter 7 bankruptcy. Interest rates and fees might be higher, and it could be harder to get approved. But it’s vital that you get new credit after bankruptcy to show that you’re a responsible lender. Building up a positive history of on-time payments gives your credit score the positive history it needs to start boosting it in the right direction.
Some credit cards approve applicants who have a bankruptcy because they know that, by law, you can’t declare bankruptcy again for another seven years.
Here are some tactics to repair credit after bankruptcy.
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.
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. 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.
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. 17. 39% (variable) Fair-Poor-Bad-No Credit No credit check necessary to apply.
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The Basics to Build Your Credit Back
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:
- Keep all accounts current and check your credit report and score frequently to ensure everything is accurate.
- 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.
- 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.
Bankruptcy can stay on your credit report for up to 10 years depending on the type of bankruptcy you file.
However, if you’re making payments on time and keeping your credit utilization low, you might start seeing an improvement sooner than you thought. 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.
The Best Ways to Repair Credit After Bankruptcy
If you’re not having any luck with traditional cards, consider a secured credit card or loan. These will require that you put down a security deposit, but the issuers will often convert you to an unsecured card after you make timely payments for at least a year. All of these loans and cards will come with more restrictions and higher interest rates than you could get with better credit.
Make small purchases on the card and pay the full balance on time every month. You’ll avoid interest and start stacking up those positive marks on your credit report.
Here are the best ways, in our experience, to get new credit after bankruptcy.
- Apply for a secured credit card
- Secured credit cards are easier to get than unsecured credit cards because they require a cash security deposit (e. g., $1,000 deposit = $1,000 credit limit). By making timely payments, you can rebuild your creditworthiness.
- Get a credit builder loan
- With a credit builder loan, you pay the lender back before you receive the money. These are usually small loans, anywhere from $500 – $5,000. After making payments upfront, you receive your sum of money.
- Retail and gas cards: These types of credit cards typically have more consumer-friendly qualifications than other unsecured cards. Make small purchases, like a few tanks of gas, and be sure to pay the balance off.
- Open a small loan: Installment accounts with fixed payments, like an auto loan or home equity loan, show creditors that you can borrow responsibly.
It’s also a good idea to get any errors taken care of with a reputable credit repair service. Contact us now so we can make sure there isn’t anything giving you unnecessary trouble on your report.
