The most detrimental thing you can do to your credit is file for bankruptcy. In fact, your credit report will reflect the bankruptcy for at least for the next 7-10 years. Often times, however, bankruptcy is the only option you have to square your finances, so ironically, you’re hurting your credit, to save it later.
The beauty about your credit is that nothing is “forever”. Even though you’ve just filed a credit death sentence, with a little hard work and a lot of patience, you can have your credit score back on the mend in no time.
Knowing that you can rebuild your credit is nice but actions speak louder than words. After filing bankruptcy, you’re first priority should be making sure that your current debts, the ones that got you into this mess, are squared away. Bankruptcy no longer discharges all of your debt (in most cases), so you’re still on the hook for part of your bills. Step one is setting up payment plans and saving enough from your income to make sure you don’t miss a single payment. After you’ve built a solid foundation of consistent payments underneath you, it’s time to seek credit. Here are a few ways in which you’re credit score can slowly begin to rise.
Check Your Credit Report
Creditors use credit reports to check your financial responsibility before extending you credit. It’s important to make sure that the information they see is 100% accurate as often times with bankruptcy filings, things are not always reported as they should be. One common mistake that may appear on your credit report after filing bankruptcy is that the accounts negotiated during bankruptcy court are not updated. This means that instead of your score dropping because of bankruptcy, it will also drop because your accounts will continue to show as delinquent. Make sure every account that belongs under the bankruptcy umbrella finds it’s way there in your credit report. This will allow other current, positive accounts to begin helping you out.
Checking your credit report is simple. You can get your report for free at annualcreditreport.com. If you also want your credit score, you should visit GoFreeCredit.com, where you’ll receive credit scores from the three major credit bureaus during your 7-day free trial. Take down all of your creditor’s contact information, call them ASAP and request that the information be updated to reflect the details of your bankruptcy. Make sure that at least once every six months thereafter, you check-in on your credit report to make sure there are no errors and to track your future progress.
Acquire a Secured Credit Card
Obtaining an unsecured credit card is nearly impossible after declaring bankruptcy, so your next best option is to apply for a secured credit card. Good secured cards will report your payments to the three major credit bureaus. While there can be an annual fee for these cards, the long term benefits of building your credit are well worth it. Secured cards require the set-up of a savings account that’s attached to your card. The amount you deposit into the savings account determines the credit limit you have. Apart from the savings account, the card acts like any other credit card. Should you fall behind on payments, the creditor will simply draw from the savings account and reduce your overall limit to the new balance. There are hundreds of available secured cards but only a couple of quality ones.
Apply For an Installment Loan
The most difficult of the suggestions made here today, obtaining an installment loan to rebuild your credit can be tricky because of your bankruptcy past. The funds you acquire should be used for nothing other than an interest bearing account, preferably a CD so that you can continue to pay the loan on time. The interest you receive from the CD will defer the loss on the interest you are paying for the installment loan and depending on the term of the loan, you should sign up for a CD of similar length. When the monthly payments are due, try to pay back more than the minimum, as this will help with your credit score as well as lower the interest you pay back over the entire course of the loan.
CD interest rates are fairly low right now but that also means that the interest rate on your loan should also be low. Signing up for a CD is a fairly painless process and if you visit Ally Bank or Discover Bank, you can find a long CD rate between 2 and 3 percent.
Finding credit after bankruptcy is something that anyone can do, you just need to know where to look. The list above shows a few strategies in how to establish your credit after you have declared bankruptcy. Each idea individually will not raise your credit score much in the short term but remaining financially sound over the next 5-10 years without falling behind on your payments will steadily improve and eventually restore your credit report and score.
Published or updated March 5, 2013.