Bankruptcy Basics: Four Ways to Begin Rebuilding Your Credit after Bankruptcy

Bankruptcy will have a negative effect on your credit, but you can start repairing it right away. In fact, depending on your situation before you filed for bankruptcy, bankruptcy may not make things significantly worse. Bankruptcy will stay on your credit record for ten years, but you can do things during that time to improve your score. Here are some steps to take right away to get started on the path to financial recovery.

Open a savings account.

Few things are more reassuring than having an emergency fund. Especially after the trauma of a bankruptcy, it can feel great to have some extra cash on hand.

Get a secured credit card.

With a secured card, you get a line of credit equal to a deposit you make minus fees. If you make a deposit of $500 and the fees are $50, your credit limit is $450. Be very cautious—some banks charge exorbitant fees. Make sure the card you choose reports to all three credit bureaus. Some banks are unlikely to grant even a secured card after a bankruptcy. Doing some homework will help avoid discouragement and further damage to your credit record.

Ask how fast you can increase the limit. Having a large credit limit and a small balance is very helpful to your credit score, as is making small purchases every month and paying off the balance in full. Be sure to pay your bills on time, which represents a significant positive boost for your credit score.

Get an unsecured credit card.

You’ll probably be surprised at how soon you’ll receive offers for unsecured credit cards. As with secured cards, check the fees carefully. And, like secured cards, you’ll benefit most if the card reports to all three bureaus.

If you apply for a credit card but are denied, the inquiry can create a slight negative impact on your credit record. As with secured cards, it’s worthwhile researching credit card issuers and avoiding companies that are unfriendly to customers with recent bankruptcies.

Get a loan.

You might consider taking out a small loan solely for the purpose of repaying it. Getting a loan, putting the money in your savings account, and using it for monthly loan payments will help your credit. You might consider a larger loan after you pay off your first small loan.

Questions or comments about this process, or about bankruptcy in general? We can help! Please contact us today to learn more.