Rebuilding your credit after a bankruptcy is similar to building credit in the first place. As someone who has less-than-ideal credit, you’re going to pay more to borrow money than before the bankruptcy. Be prepared for high interest rates, low credit limits, and even annual credit card fees. But it’s not the end of the world. By following a few simple tips, you can bounce back to relatively good standing in the credit world within a few years.
Immediately After a Bankruptcy
People who file Chapter 7 will see an immediate reduction in their debt-to-income ratio, making them more desirable applicants for loans and credit cards. Of course, bankruptcy appears on your credit report, which is rarely a good thing at first glance. When your credit is pulled, potential creditors will see closed accounts marked as “Included in bankruptcy.” Because of this, there won’t be an overall positive effect on your report at first. However, the positive aspect of this is that delinquent accounts should no longer be reported as such. In addition, discharged accounts should show a zero balance.
If your bank account was closed as part of a bankruptcy, it’s a good time to open a new one. Having a bank account shows stability and responsibility. Use automatic bill pay, a feature now offered by most banks, to keep up with your remaining bills.
Months After a Bankruptcy
You need a credit card to most efficiently rebuild credit after bankruptcy. Try getting a gas card or store credit card at first. Do your research on which stores actually accept bad credit, and note that some stores are more tolerant of no credit at all. For example, Walmart is a good store that emphasizes a long credit history, so the card is achievable even with multiple bankruptcies. However, they generally reject anyone who’s just starting out with their credit.
If this doesn’t work, settle with a top secured credit card. Keep the balance low and always pay on time. Rebuilding credit after bankruptcy is a slow process that requires a lot of patience. If you have access to your credit score, check it once per month. It might go up a point or two every time all of your accounts report that they’re paid as agreed. Having a credit card that you use to pay for small purchases every month, and then repay the balance in full, can help speed up this process.
Years After a Bankruptcy
Bankruptcy can be reported for up to one decade, depending on the type of bankruptcy completed. Chapters 7 and 11 are reported for up to seven years, but after this time, everything involving the bankruptcy should be deleted from the report. If it remains on your credit report after its time limit, file a dispute with the credit bureaus. TransUnion, Experian, and Equifax are all quick to respond to disputes. They’ll immediately notify the creditor to verify the information on the report. If it’s true that the report should no longer be listing your bankruptcies, they will be removed.
Disputing inaccurate credit report entries can do wonders for your overall credit report, particularly when those entries are significantly negative.
Final Thoughts on Rebuilding Credit After Bankruptcy
Patience is a virtue when it comes to improving credit after a bankruptcy. It’s incredibly important to pay your bills on-time and as agreed, avoiding charge-offs and delinquencies. As long as you continue to pay your bills and occasionally getting a new credit card to speed the process, you’ll eventually reach a high credit score of 700 or more.
