How To Rebuild Your Credit Score After Bankruptcy – Build Credit Again

Filing bankruptcy isn’t the end of the world, but it does put your credit score in shambles – fortunately nothing is forever.

Now before I talk about how to rebuild your credit score after bankruptcy, let me say that not having any credit might be a good thing. If running up your credit cards was what got trouble in the first place, make sure you’ve got yourself on a budget and that you’re going to be a lot more careful this time around.

Here are three steps you should take before trying to get credit again:

Setup a budget and learn to live below your means
Establish an emergency fund so that if disaster does strike (you lose your job or your car needs major repairs) you have money sitting in the bank that you can use to ride out the storm
Make sure you have some kind of health insurance even if it only covers major problems. A lot of bankruptcies are caused by medical bills and since you can’t file again for a while make sure you have health insurance that will cover health problems.

Ok, now that we’ve got that out of the way, let’s talk about rebuilding your credit.

There is no quick fix after filing bankruptcy – your credit score is going to be bad for years. However, there are steps you can take to rebuild your score more quickly.

Step 1) Check your credit report (the free one, not the paid ones)

There are plenty of services out there that will tell you that you need to monitor your credit score and so on and so forth. You don’t need them. Your credit score will be bad – you already know that so there’s no sense in paying anyone to give you your actual score.

Your credit report on the other hand can have a lot of errors on it after bankruptcy as some of your delinquent accounts may still be showing as open and not included as part of your bankruptcy. Get those cleared up (no need to hire anyone, you can do it yourself) so that your credit score can start to slowly creep its way up to the land of respectability again. Remember that all three credit bureaus will let your check your credit report for free. Just go to AnnualCreditReport.com (it’s a completely free site run by the three major credit reporting agencies and won’t enter you in any free trials or anything like that).

Step 2) Get A Loan (Installment Loans)

After you’ve made sure your credit report is correct, it’s time to start trying to get credit again.

Why?

Credit is built (and rebuilt) by having and using credit.

If you’re still struggling to pay your bills, then you’re not ready for this step yet as it’ll just get you into trouble. You may even find that after living without credit for a while, you don’t want it, which is just fine so don’t let me talk you into getting credit you don’t want or use. This guide is simply for those that do want to get credit again after their bankruptcy – it’s not required that you do so.

There are two major types of loans that factor into your credit score – installment loans and revolving credit. Installment loans are loans for things like your mortgage, student loans, or for a car. If you already have a student loan (can’t be discharged during a bankruptcy) or you kept your house during the bankruptcy, you don’t have to do anything to try to get a new loan. Just keep paying those loans back and make sure you make every payment on time and they’ll help you with rebuilding your credit score.

If you don’t have any installment loans and you want one, your best bet is to buy a used car (after a year, you may be able to qualify for a high interest mortgage but I wouldn’t recommend it until you can get a decent rate on a house). Keep in mind that the loan is going to be at a very high interest rate (in excess of 20%) so there is a price to pay, but it will help you get your credit score up more quickly than if you don’t have any installment loans at all. Most towns usually have at least one car dealership that specializes in working with people with bad credit. If not, talk to your local credit union or go online and use one of the online auto loan services that specializes in arranging auto financing for people with a bankruptcy in their past.

Step 3) Get A Credit Card (Revolving Credit)

One of the things that may surprise you after you file bankruptcy is how quickly you’re able to get a credit card again. After about a year, you’ll be able to get an unsecured credit card though there will likely be an annual fee and the interest rate will be rather high. If you want a credit card before that, you’ll have to get a secured credit card (not the same as a prepaid credit card or a debit card).

You don’t need to carry a balance to raise your score, you just need to use the card on a regular basis – once a month is plenty. Just buy something with the card and pay off the balance when your bill comes.

Also, make sure you don’t charge more than 35% of your credit limit. That means if your credit limit is $500, then you should make sure that when you do use the card, the balance should always be below $175 even if you do pay the card off every month.

My recommendation would be to use the card to fill up your gas tank once a month.

If you follow these three recommendations and just keep plugging away at it, after a few years (about 5) you’ll find that your credit score has returned to a place where you can get favorable financing rates should you need credit though you may find it liberating not take on debt ever again which is the path some people choose.

If you have any questions, just post in the comments section below (don’t worry, we can keep it anonymous) and I’ll do my best to answer or at least point you in the right direction.

Best Credit Cards For Rebuilding Credit

Below is a list of credit cards that are generally good for helping you rebuild your credit. There are fees associated with them, but currently these are the best unsecured credit cards for bad credit available. Some of the cards in the list below are prepaid – avoid those as they won’t help you re-establish your credit. (I recommend cards from Orchard bank as they tend to be the best of the bad credit credit cards.)