How to Rebuild Your Credit After Bankruptcy

Filing for bankruptcy may be the best decision for you if you are suffering from high amounts of debt. However, while filing for bankruptcy can help to discharge your debts or create a manageable repayment plan, it’s important to know that a bankruptcy filing will have a major impact on your credit score. To be sure, filing for bankruptcy can show on your credit report for between seven and 10 years after your filing, making it difficult for you to secure new lines of credit, get a loan, or even be hired for certain jobs.

Fortunately, there are steps that you can take to rebuild your credit after bankruptcy and get yourself back on stable financial footing. Here are some tips for rebuilding your credit after bankruptcy:

1. Keep Up with Your Current Payments

The number one most important thing that you can do when you are recovering from bankruptcy is to refrain from incurring any new and unmanageable debt. This means that if you do have any existing lines of credit, it is essential that you keep up with your current payments—this means making payments on time and in full each month. Making your monthly payments should be your number one priority.

And it’s not just loans and credit cards—if you have other bills, such as medical bills, utility bills, etc. that could result in your account being turned over to collections, do everything in your power to find a way to pay these down.

2. Monitor Your Credit Score

Not only should you keep up with your monthly payments, but you should also have a solid idea of where your credit score currently sits and what impacts it. Fortunately, there are free and easy ways to do this. One option for checking your credit score at no cost to you is to use AnnualCreditReport.com.

In checking your score, make sure that you flag anything that doesn’t look right—such as a claim that you didn’t make a payment in full that you believe you did. If something is misreported on your credit report, you have the right to challenge it.

3. Consider a Secured Credit Card

One of the downsides of filing for bankruptcy is that it can make it difficult to get a credit card until the bankruptcy filing is no longer reflected on your credit report. One strategy for getting around this hurdle is to open a secured credit card. A secured credit card is a type of card that is backed by a deposit that you pay. For example, you may have to make a deposit of $500 in order to get a credit card with a $500 limit. It may not sound like much, but it can be the first step toward responsibly using credit again. Note that in addition to a deposit, secured cards typically also have higher interest rates and may carry annual fees as well, so be sure to weigh the benefits and tradeoffs before choosing this type of card.

4. Create Good Overall Financial and Budgeting Habits

Making credit card payments on time and in full and responsibly using a new credit card will be rooted in good financial habits. After bankruptcy, it’s a smart idea to set some financial goals for yourself. For example, now’s the time to review your spending-to-income ratio and create a budget, build up an emergency fund, and understand the best practices for spending as they relate to housing, credit, and more.

5. Find a Co-Signer

Sometimes, rebuilding credit after a bankruptcy filing can feel a bit like a chicken and egg scenario—you know you need to rebuild your credit score, but you need a credit card to do so; however, you can’t get a credit card or open a new line of credit or a loan because your credit score is currently too low!

This can be frustrating, but it’s not helpless. One option for opening a new line of credit or securing a loan is to find a co-signer. If you have a close friend or family member who has a strong credit score and a stable source of income and who is willing to co-sign for you, this can help build your score. However, it is a big ask of your friend or family member—and they’ll be on the hook for any missed payments, too.

Start Rebuilding Your Credit After Bankruptcy Today

Filing for bankruptcy can be a scary decision, but it may be the best one to give yourself the clean slate you need to move forward. Once your bankruptcy filing is complete, it’s time to start rebuilding your credit. Keeping up with your current payments, monitoring your credit score, considering a secured card, creating good overall financial and budgeting habits, and finding a co-signer for any new loans or lines of credit can all help.