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Credit repair after bankruptcy: Fixing your credit report after going bankrupt is possible
How to polish your credit score after bankruptcy and get your finances on the right track.
Bankruptcy can potentially stay on your credit report for up to 10 years — depending on the chapter filed. And even though it seems like bankruptcy will have an ongoing impact on your financial circumstances forever, that’s just not the case.
There are ways to improve your credit history and increase your chances of loan or credit card approval after bankruptcy. Check out steps you can follow to repair your credit history, plus a few ways to maintain good credit so you can move past bankruptcy.
Get help with credit repair after bankruptcy
11 ways to start repairing your credit score after bankruptcy
Building up healthy financial habits is the best way to repair a bad credit rating that comes from having bankruptcy listed on your credit report. This can be done with the help of a credit repair specialist or on your own using the following steps:
- Work on your employment circumstances. The financial security that comes from having a stable job can improve your credit rating by showing lenders you have a regular source of income — so it’s a great first step to take.
- Budget. It’s likely you’ve veered off the path of your budget in the past if you’ve declared bankruptcy. This time around, draw up a budget and stick to it to avoid any pitfalls that could land you in hot water.
- Start saving. Start by regularly putting money aside, even if it’s just a small amount that you transfer to a dedicated savings account. It’s an aggressive goal, but aim to have enough money in your savings to cover six months worth of expenses.
- Emergency fund. Similar to savings, but more of a rainy day fund. Having an emergency fund will prevent you from maxing out a credit card or taking out a payday loan when unexpected expenses pop up — think medical bills or car repairs.
- Limit your credit applications. Too many credit applications can negatively affect your credit history. After bankruptcy, it’s important to be selective about the types of credit you apply for to increase your chances of approval. Only apply for financial products that are likely to be approved, such as secured credit cards, no-frills credit cards or loans.
- Get rid of nonessential expenses. Water, electricity and groceries are essentials, but consider cutting corners to save some money. Take shorter showers, lower the heat and put on layers, don’t go out to eat, reduce the data on your cellphone bill or get rid of cable television. You can free up some serious cashflow if you’re willing to sacrifice some of the luxuries you have.
- Make payments on time. Whether you have a secured loan, credit card or an electricity account in your name, making sure you pay the balance on time will help you build up good credit history after bankruptcy. Delinquencies — missed or late payments — can linger on your credit report for up to seven years.
- Talk to issuers. If you want to find out what options are available after bankruptcy, consider calling up banks and other lenders to discuss your situation. They’ll be able to advise you on your eligibility and answer any specific questions to help you find options that’ll work for you.
- Don’t close existing or new accounts. When you close credit accounts, you negatively affect the length of your credit history and reduce the limit of credit that’s available to you. Because both of these factors go into the calculation of your credit score, you should keep all of your accounts open. If you think you’ll be tempted to spend on a credit card, shred it.
- Monitor your credit report. You’re entitled to a free credit report from the three major bureaus — Experian, Equifax and TransUnion — once every 12 months. Look for errors and dispute them to remove any negative information from your report.
- Monitor your credit score. By keeping an eye on your credit score, you’ll have a general idea of what financial products you’re eligible for. Some credit card providers and finance websites offer to show you your score each month, otherwise, you’ll have to pay the credit reporting agencies to see it.
It’s important to realize that this process takes time. The longer you focus on these credit building strategies, the more positive of an impact you’ll see reflected in your credit report — it’s worth it in the long run.
Your payment history accounts for 35% of your credit score, so it’s crucial to make on time payments to rebuild your credit.
What types of financial products can help me rebuild my credit after bankruptcy?
The most important thing after bankruptcy is taking the right measures to improve your credit history. Only apply for a product when you’re confident you’ll meet the eligibility requirements and can manage the account responsibly. Remember that it could take time before a lender is willing to approve your credit application after bankruptcy, so try to have patience.
Some different types of credit that can help improve your creditworthiness after bankruptcy include:
- Secured personal loans. There are two types of secured loans you can take, one option lets you borrow against money that you already have in savings, the other option is a credit building secured loan. This sees you making payments until the loan has been paid back, at that point you have access to the money.
- Secured credit cards. Secured credit cards are a useful financial tool for consumers who’re trying to rebuild their credit. The way it works is you deposit money with a lender and then that amount becomes your credit limit. So if you deposit $300 and the annual fee is $29, your available credit limit is $271. Keep in mind that with secured cards, annual fees and interest rates may be higher than usual. After making payments and staying in good standing for 12 to 24 months, request to move to an unsecured credit card.
- Retail or gas credit cards. Both store credit cards and gas credit cards generally have high rates of approval. However, be aware that they’ll also come with unfavorable interest rates. It’s important to pay your balance in full each month to avoid any extra charges due to interest.
- Loans or credit cards with a cosigner. If you’re having trouble getting approved for credit, asking a family member or close friend with a healthy credit history to cosign should get you a credit card or loan. Remember that cosigners are putting their creditworthiness on the line to vouch for you. So if you mismanage your credit, it can negatively impact their credit history, plus they’ll be the one held accountable for the unpaid debt.
- Low income credit cards. Credit cards with a low minimum income requirement typically offer little in terms of features. However, this could be the right type of tool to manage your finances and build your credit.
Did you know?
You can build your credit as an authorized user on another person’s credit card account. As an authorized user, you can use the account freely, but won’t be directly responsible for making payments to the lender. The account owner is essentially trusting that you’ll use the credit card responsibly while you piggyback off of their good credit to build up yours.
When using new credit accounts after going through bankruptcy, it’s essential that you confirm with the lender that it reports your activity to the three major credit bureaus.
On top of that, make sure payments are being made on time and that you’re keeping your credit utilization ratio well under 30% to ensure your credit score doesn’t get dinged.
Can a credit repair agency help me fix my credit report after bankruptcy?
These “credit fix” or “debt solution” companies can advise and act on your behalf to challenge any incorrect listings on your credit report. Credit repair agencies can’t magically fix your credit report after bankruptcy, instead they set you on the right path and teach you the basics of getting your score going in the right direction.
Even though you can teach yourself about credit repair, some people would rather save the time and go direct to the experts. When getting a credit repair agency to help you improve your credit report, make sure you compare different options and research their services so you know exactly what you’re paying for.
The silver lining is that now you can start to develop and practice financial habits to reclaim your creditworthiness after dealing with bankruptcy.
By maintaining full control of your credit and staying between the lines of your budget, you can focus on improving your credit report to get your financial life back together again.
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