Rebuilding Your Credit after Bankruptcy

The bankruptcy proceedings weren’t easy – this we know. Your financial situation, once a personal and private matter, suddenly became the business of your lawyers and the courts. Even still, a huge burden was lifted off of your shoulders when your discharge was granted.

There’s one huge question looming over your head now, though. What will you do to rebuild and repair your credit now that you have a clean slate to work with?

Applying for New Credit

Credit may have been what got you in trouble in the first place but take a look around and you’ll soon find that living a life without credit is nearly impossible. Living a cash-only life may seem like the best alternative but you will, at some point, want to rent (or buy) a car, buy a plane ticket, or make a reservation – all of which require the use of some type of credit or credit card.

There are two types of credit you should watch out for after bankruptcy. One is installment credit (such as a car loan) and the other is revolving credit (such as a credit card). You’ll have a hard time qualifying for an unsecured credit card, so your best bet is to apply for a secured credit card.

How to Establish Credit After Bankruptcy

Applying for Secured Credit

Establishing a secured credit account is easy. You will have to make a deposit with the issuing bank - $500 or $1,000 for example – and that amount will be your available credit. Look for the following characteristics from the unsecured credit company you are planning to work with:

  • Will you have to pay unreasonable fees? These include application fees, annual membership fees, and other hidden charges. There’s no reason to pay extra fees like these even if you are attempting to rebuild your credit.
  • Don’t use a credit company, even secured, that does not report to TransUnion, Experian, and Equifax. These are the three major credit bureaus and the information they keep on file contributes to your credit score.
  • Will the card you choose eventually roll over to an unsecured card after a year or two? Once you reestablish your credit history you should not be limited to secured credit alone.

Establishing Installment Credit

Installment loans, such as your student loan, do have an impact on your credit score as well. Make sure you make all of your installment payments on time and, if possible, take advantage of extra cash your discharge created and use it to pay down your student loans even faster.

Looking for a car loan may seem like a viable option but you’ll have a difficult time finding a reasonable interest rate with a bankruptcy on your credit report. While the rest of the world pays a 3% interest rate you may end up paying more than 20%.

Tread carefully after filing for bankruptcy and you’ll find that you are able to rebuild your credit score in only a few years. While the bankruptcy itself will appear on your reports for up to 10 years, your creditors will see the fruits of your efforts and take them into consideration when you apply for a loan.

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