How To Repair Your Credit After Filing For Bankruptcy

August 11, 2020 Credit Repair
How To Repair Your Credit After Filing For Bankruptcy

Bankruptcy can cause serious damage to your credit. However, it doesn't have to mean that there is no hope for the future. Once you file for bankruptcy, there are some crucial steps you need to take to get your life back on track.

What Is Bankruptcy?

Bankruptcy is a process that allows consumers and businesses to get rid of unwanted debt and start with a clean slate.

Although it has a negative connotation, bankruptcy keeps credit running in the economy. However, filing for bankruptcy severely damages your credit and can stay on your credit report for up to 10 years.

What Do I Do After Filing For Bankruptcy?

Check Your Credit Score

You can check your credit score and keep an eye on any changes with the help of a credit monitoring service.

Identity Guard
Year Founded
1996
Credit Score Required
-
Pricing
Starting at $8.99/month
BBB Rating
-
Trial Period
30 days
IdentityIQ
Year Founded
-
Credit Score Required
-
Pricing
6.99
BBB Rating
-
Trial Period
-
TransUnion
Year Founded
1968
Credit Score Required
None
Pricing
Starting at $19.95/month
BBB Rating
A-
Trial Period
7 days
PrivacyGuard
Year Founded
1973
Credit Score Required
None
Pricing
$19.99/month
BBB Rating
NR
Trial Period
14 days
CreditID123
Year Founded
2018
Credit Score Required
None
Pricing
Starts at $9.99/month
BBB Rating
-
Trial Period
Free 1-day trial period

Dispute Incorrect On Your Credit Report

As you aim to rebuild your credit, keep track of any changes on your credit report. You can acquire a free copy once a year at Annualcreditreport.com.

If you come across any inaccurate or unverifiable information, disputing and removing them will help increase your credit score. You can do these corrections yourself or have a reputable credit repair service do the legwork for you instead of having to spend extra time making disputes with the bureaus.

Credit Saint
Year Founded
2004
Credit Score Required
None
Pricing
Starting at $79.99/month
BBB Rating
A+
Money-back Guarantee
90-day 100% money back guarantee
Number of Customers Helped
-
Lexington Law
Year Founded
1991
Credit Score Required
None
Pricing
Starting at $89.95/month
BBB Rating
-
Money-back Guarantee
None
Number of Customers Helped
500,000
The Credit People
Year Founded
2001
Credit Score Required
None
Pricing
Starting at $69/month
BBB Rating
A+
Money-back Guarantee
60 days
Number of Customers Helped
200,000
CreditRepair.com
Year Founded
1997
Credit Score Required
None
Pricing
$99.95/month
BBB Rating
-
Money-back Guarantee
None
Number of Customers Helped
-
Sky Blue Credit
Year Founded
1989
Credit Score Required
None
Pricing
$79/month
BBB Rating
A+
Money-back Guarantee
90 day moneyback guarantee
Number of Customers Helped
-

Keep in mind that only incorrect information can be removed, which means that if any of the paperwork going into filing for bankruptcy is incorrect, this can be disputed. However, all accurate information will stay on your credit report for 7 to 10 years.

Build An Emergency Stash

Work on building a nest egg for future emergencies. Save a small portion of a paycheck or spare change to build up your savings. Even a couple of hundred dollars prevents you from taking out loans or running up credit card debt in case of an unexpected expense. If possible, save up a minimum of three months of living expenses.

Rebuild Your Credit With A Credit Card

After disputes, another way to rebuild your credit is by getting a credit card. Because payment history is 35% of your credit score, paying off all your accounts is a great way to rebuild your credit.

Although you should avoid any more debt, having a good payment history improves your credit. You don’t want to charge everything to your credit card, so start off with a small purchase or bill and immediately pay it off.

Getting a credit card may be difficult but there are a few unsecured and secured credit cards that you can be approved for. With secured credit cards, you can put a refundable deposit equal to your credit line, which means that when you charge an item you pay for it out of pocket. The initial deposit covers any payments you miss and the credit limit is generally your deposit minus any annual fees.

You can apply for a secured credit card at a local bank or credit union. They generally have high annual fees (anywhere from 15% to 23%) and high interest rates. This is a short-term fix for boosting your credit until you can qualify for an unsecured card. Before applying, check to see if you will receive a refund in case you are denied for the card. It's also important to make sure the bank allows credit increases and does not report the card as secured.

When using these new credit cards, make sure you keep your balances as low as possible. Try to use only around 10% of your credit line, pay them off on time, and avoid using them for large purchases. It's also important to check that the credit card companies report to all three credit bureaus and that you do not submit too many credit card applications since multiple inquiries can damage your credit.

You can also apply for a retail card at a department store, which is easier to qualify for once you have successfully used a secured card. Because these cards have higher interest rates, ensure that you pay off the account every month.

Get A Secured Loan

In the case that you need a loan, there are two types provided by banks and credit unions. Secured loans, which are similar to secured credit cards, allow you to borrow money that you have on deposit.

The second type of loan is made with a cash payment and the money loaned to you is put in a savings account. You will only be given access to it once you have made payments and in return for your on-time payments, banks and credit unions send reports about your payment history to the credit bureaus.

Use A Co-Signed Credit Card Or Loan

Another way to boost your credit score is by applying for a co-signed credit card or loan. This is risky for the co-signer, who is putting their credit on the line for you and is responsible for paying off the debt if you do not pay. They may also run into limits on their own credit line because of the additional debt.

If you are not comfortable asking someone to co-sign, they can become an authorized user on your credit card. Although this won’t improve your credit as much as a co-signed credit card, it's important that the credit card companies report payments by authorized users to the credit bureaus for any improvements to occur.

Avoid Taking Out Unnecessary Credit

After bankruptcy, spend as little as possible and avoid taking loans (unless it is a credit-builder loan. The time in which it becomes safe to take out a home or auto loan varies with each borrower.

Although it is possible to take out a loan the day after filing for bankruptcy, it will take time to rebuild your credit to a good score. With bad credit, you should be ready to pay higher interest rates on loans.

Getting an FHA mortgage is possible one to two years after the bankruptcy has passed if payments have been made regularly for one year and the courts grant you permission. In the case of foreclosure, consumers are unlikely to get a mortgage unless they can rebuild their credit score to good standing.

The Bottom Line

While bankruptcy can cause serious damage, it doesn't have to mean that you have to live with bad credit forever. As long as you take the right steps, you can get your credit back to -- or even better than -- the way it was.

What are some benefits of a good credit score?

A good credit score can help you with the following:

  • Renting a house or apartment (without putting down a hefty deposit)
  • Your mortgage payments will be lower
  • You will receive a lower down payment when you purchase a cell phone
  • Your utility bills will be lower
  • Your insurance premiums depend on it
  • Potential employers may look at your credit history to determine reliability
  • It will be easier to qualify for loans
  • You will receive lower rates on loans
  • You will qualify for better credit cards

What factors make up my credit score?

Your FICO® is made up of five factors:

  • Payment history: 35%
  • Credit utilization: 30%
  • Credit age: 15%
  • New credit: 15%
  • Types of credit: 10%

What negative items appear on my credit report?

Your credit reports can contain both positive and negative history. Items that negatively impact your credit include:

How can I improve my credit after a bankrupcty?

  • Consider credit repair and contact a credit repair service
  • Always pay your bills on time
  • Deal with past due accounts
  • Reduce your credit utilization
  • Keep old credit accounts open
  • Open new credit (but avoid applying for too much new credit)
  • Monitor your credit

About The Author

Ashley Davison avatar

Ashley Davison

Director of Operations, Credit Saint LLC

Ashley is currently the Chief Operating Officer for Credit Saint, previously working as a Logistics Coordinator at Ernst & Young. She is currently working toward an Executive Leadership Certificate from Cornell University.

With a degree in education, she is eager to teach the world everything she knows and learn everything that she doesn’t already know! Ashley is a FICO® certified professional, a Board Certified Credit Consultant, Certified Credit Score Consultant with the Credit Consultants Association of America and holds a Fair Credit Reporting Act (FCRA) Compliance Certificate.


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