3 Ways to Rebuild Credit After Bankruptcy

Credit history first and foremost is determined by how much debt someone has relative to their income, whether they pay their bills. Of the FICO score, 30% is based on how much is owed relative to income. The largest amount, 35%, is based on payment history.

Credit Free

The most disciplined method to rebuild credit after bankruptcy is to never use credit again except for a home mortgage. Never spend more than you bring in. Never buy things on credit. Save up cash and then buy it. This is what most people did before the invention of credit cards. The no debt ever approach is highly recommended by financial talk show host Dave Ramsey and his Financial Peace University program. Theoretically, after ten years of no debt payments at all, an individual’s credit history report could become a blank sheet. In reality, the credit score will rise as the bankruptcy ages off the credit report and improve when the person buys a home and proceeds to pay off the mortgage.

Secured Credit Card

Secured credit cards are backed by a savings account. For most secured credit cards, the person can only spend up to the amount in the savings account and no more. Using the secured credit card has the convenience of a credit card or debit card. In many cases, the secured credit card is reported on the credit report as a card paid in full and on time, raising the credit score. However, according to Bankrate, secured credit cards are not always reported to the three major credit bureaus. Ask a bankruptcy attorney which secured credit cards they recommend. These secured credit cards are ones that will be reported to the credit bureau without excessive fees and charges.

One High Rate Card Used Sparingly

Only 10% of the credit score is based on “new credit”. Contrary to the sales pitch of the credit card hawker at most major retailers, you do not build up your credit score by getting a credit card at every store you shop regularly. Getting a single credit card with a vendor you use regularly but can afford to pay off entirely is a good solution to rebuild your credit. A single, high rate card that you occasionally use and will never exceed the limit with is a good idea to get.

Where you should not get a high rate credit card?

  • Any vendor who relies on discretionary spending, such as a restaurant or clothing store
  • Any home improvement store, since these purchases tend to be very large when home repairs occur
  • Medical credit cards or medical loans as offered by some urgent care centers and unscrupulous medical outlets. If you need a payment plan for the hospital visit, talk to their financial department about setting up a payment plan. Put the braces on an installment plan. Don’t sign up for a credit card with 20-30% interest with the dentist or urgent care facility.

Where can you get a high rate credit card that fits this bill?

  • Gas cards, with the added bonus of receiving discounts on gasoline
  • Grocery store credit cards if you can control your spending and pay it off every month
  • Your local pharmacy if the spending tends to be small over the counter purchases and occasional prescriptions, with the benefit of discounts in the store
  • A credit card from a local credit union with a low limit that you use sparingly

If you are currently in bankruptcy, contact our Minneapolis bankruptcy lawyers before you agree to a new installment loan such as a hospital payment plan or home repair loan. These new loans affect your credit score and your bankruptcy case.

How Other Behavior Affects Credit Score

Pay your bills. This seems simplistic until you realize that over a third of your credit score is dependant upon this factor. And the credit score is not just based on whether you paid the department store credit card and your Visa bill. If you are late on your rent or utility bills, this will negatively impact your credit score. For someone coming out of bankruptcy, paying your child’s daycare, your electric bill, your gas bill and other monthly bills will help your credit score.


Suze Orman in the past has recommended becoming a signer on someone else’s credit card if they have a good credit score. The logic was that this gives you access to a credit card while that person’s great score partially affected your own credit. FICO has since changed their FICO scoring method so that being attached on a parent or sibling’s credit card as a signer doesn’t boost your credit score as much. However, this can establish a good credit history in your name with that credit card company. Try to wait a full year before applying for a credit card with that vendor. Then use the payment history of that card and disciplined usage as the basis of receiving a credit card in your name at a reasonable interest rate.

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