How to Repair Your Credit After Bankruptcy
Patience and discipline will help you rebuild
It's a widespread myth that filing bankruptcy will ruin your credit forever. Although bankruptcy does do some serious damage to your credit score, that damage is not irreparable. With discipline—and a little patience—you can follow these steps to slowly rebuild your credit and get your financial life back on track.
Make Sure Your Credit Report Accurately Reflects Your Bankruptcy
You might think you don’t want your bankruptcy to appear on your credit report, but it's much better than displaying outstanding and delinquent balances. Instead, your credit report should show a $0 balance for any accounts that have been discharged through bankruptcy.
It's not unheard of for creditors to continue to report negative account information even after your bankruptcy discharges, so it's important to inspect your credit report regularly. It might cost you a few dollars to check every few months, but it's money well spent—and you're entitled to one free credit report each year.
Raise a flag with the credit reporting agency if any of your discharged debts are shown as active. In fact, some experts recommend sending each agency a copy of your discharge immediately to alert them that they should not report any further information on those accounts. If you do find any errors, you can send a dispute to the credit bureaus.
Keep Paying Non-Bankruptcy Accounts on Time
Not all of your accounts will be included in your bankruptcy. Student loans, for example, typically can’t be discharged. Any accounts that are still active will continue to impact your score, so make sure you keep paying down any existing loans on time.
Don't ignore accounts that aren’t on your credit report, either. These could eventually be reported, especially if you fall behind on payments. Your goal here is to show creditors that your financial mishaps are behind you.
Avoid Credit Repair Companies
You’ll see plenty of advertisements and mailings from credit repair companies that say they can remove a bankruptcy from your credit report. If your bankruptcy report is accurate, however, there is nothing these companies can legally do for you that you can't do for yourself. They will happily take your money to file a dispute, but it won't get you anywhere.
Do not believe anyone who says they can take a bankruptcy off your credit report. Time is your real friend: once seven to 10 years have passed, bankruptcy will fall off your report on its own. Instead of wasting your time trying to erase the past, focus on writing your financial future.
Get New Credit
Securing new credit is one of the biggest hurdles to get over in postbankruptcy credit repair, but it’s also one of the most critical steps to rebuilding your credit.
Some credit cards approve applicants who have a bankruptcy because they know that, by law, you can't declare bankruptcy again for another seven years. And retail and gas cards tend to have lower qualification standards than other unsecured cards.
If you're not having any luck with traditional cards, consider a secured credit card or loan. These will require that you put down a security deposit, but the issuers will often convert you to an unsecured card after you make timely payments for at least a year.
All of these loans and cards will come with more restrictions and higher interest rates than you could get with better credit. Still, they open the door for you to start rebuilding your credit. Make small purchases on the card and pay the full balance on time every month. You'll avoid interest and start stacking up those positive marks on your credit report.
Consider a Co-Signer
Having a family member or friend co-sign with you can help you qualify for better cards or loans and re-establish your credit much more quickly. If you do have a willing co-signer, you must maintain a spotless payment record going forward—and not just for your own benefit. If you default or if you're late with even a single payment, this information will ding your co-signer's credit report as well as your own.
Many credit card companies won't accept co-signers, but auto loans and some others commonly will. Another option is to have someone add you as an authorized user on their account. This won't repair your credit as fast, but it will still help.
Frequent job changes won't affect your credit score, but lenders look at more than your credit report when you submit an application, especially after a bankruptcy. If you've held four jobs in the last year, that might indicate that you have a problem with discipline or responsibility. You might not be the type of borrower on whom a lender wants to take a chance. In contrast, if you have a solid job and you've been with your employer for a while, this sign of stability might sway a decision in your favor.
Make Your New Credit Card Payments on Time
The two things that most help your credit score are time and positive payments. When you get a new credit card—whether it’s secured or unsecured—be sure to make your payments on time every month. Even better, pay your balance in full to keep yourself from getting into trouble with debt again.
Any time you're more than 30 days late with a payment, it can show up on your credit report and stay there for seven years. Add that to the bankruptcy filing that already appears, and your case for creditworthiness becomes much harder to make.
Keep Your Balances Low
Consumers with the best credit scores keep their credit card balances low. This isn’t about how much of your balance you pay off every month, but rather how much you charge in the first place.
The credit card issuer could report your credit card balance at any time during the month, so you'll want to be sure that your total balance is never more than 30% of your credit limit. Less than 10% is even better, especially while rebuilding your credit.
Apply for New Credit Sparingly
Part of your credit score is based on how many new credit applications you make. Avoid putting in several new credit card or loan applications at once, particularly if you’re getting turned down. The new applications will ultimately make lenders wary of approving you because they think you might be desperate for credit. If you're not having any luck, focus on paying off existing debts and try again in six months or so.
Take It Slow
If you're in too much of a rush, you could end up making a mistake that will just delay your credit repair progress. Take it one payment at a time. Charge what you can afford and pay the balance off every month. It might take a few years, but you can eventually regain an excellent credit score.