How To Build Credit After Bankruptcy (Step-By-Step Guide)

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Are you concerned about how you are going to fix your credit after becoming bankrupt? You may be wondering if rebuilding your credit is even possible.

Thankfully, we are not only going to tell you that it is possible, but we are also going to show you how you can do it.

In this article, we have put together a step-by-step guide on how to rebuild your credit record over the course of time after filing bankruptcy.

A Step-by-Step Guide to Rebuilding Credit After Bankruptcy

Bankruptcy stays on your credit report for up to ten years. That is a long time!

But, it may give you a fresh start and there are steps you can take to recover. Below, we have listed ways to slowly but certainly repair your credit scores after you have declared bankruptcy by filing Chapter 7 or Chapter 13.

While these steps may not make a difference overnight on your credit report, you will certainly begin to notice your credit improves as long as you stick to completing them.

Obtain a Credit BUilder Loan

Credit builder loans can be extremely helpful for rebuilding credit. It is much easier to get approved for loans and credit cards when you have good credit.

But if you have filed for Chapter 7, you no longer have that. And, in fact you officially have bad credit. The catch 22 is you need credit to rebuild credit! Establishing credit after bankruptcy will help you.

A credit builder loan is a secured loan that is designed to help you in this situation. You have to pay money into the loan in advance. It might only be part of the full loan however.

But, once you have done that, making monthly payments on this secured loan will start rebuilding credit for you. Here are some options of credit builder loans.

You can also purchase a tradeline to help.

One way to help repair your credit is to purchase a tradeline. This adds the credit history of a seasoned, positive account to yours.

Tradeline Supply Company sells these, allowing you to purchase a tradeline and help repair your report and improve your credit score.

Check out this list of the 5 best tradeline companies.

If you do opt for a loan, learn mistakes to avoid when applying for loans.

Continue to Make On Time Payments Through your Accounts

keep making your payments on time — Photo by Malvestida on Unsplash

After declaring bankruptcy, the first thing you must do is figure out which accounts were cancelled and which ones weren’t.

You should get a copy of your credit report which you can get for free from the consumer credit bureaus. Know exactly what your credit scores are for starters.

The majority of your debt is erased via bankruptcy, however there will normally still be some remaining debt which needs to be paid back. This debt could take the form of child support payments, mortgage or college debts.

By completing all of your payments for these outstanding bills on schedule and, if possible, in full, you can start the process of restoring your credit after bankruptcy. Keeping credit balances low will help.

The key to establishing good credit is making timely payments, and the lower your credit use ratio, the faster you can begin to rebuild your credit.

More Reading:

Need a Way to Build Your Credit? Try the Ava App

Ava: 74% of Ava members see an improvement in their credit and credit score in less than 7 days! One of the best apps to build credit quickly is Ava! Download the app!

Keep on Top of Credit Card Payments

Your payment history serves as the most crucial aspect of your credit score and your credit report, as we have mentioned.

Making on-time payments when you receive new credit is vital, particularly following bankruptcy, as delinquencies may further lower your credit score.

Plus, keeping your credit card balances down is important. You want to have a low credit utilization ratio for good credit. This means that your balances are significantly lower than the maximum amount available on the credit card. So, basically, don’t max out your credit cards and debt payments!

You may gradually rebuild your credit and establish your dependability by making on-time payments.

Paying off your card several times throughout the month, scheduling alerts to make monthly payments, and organizing your financial affairs will help you with rebuilding credit. You will be able to wipe off the full outstanding balance and remain on track of your payments.

More Reading: Credit Saint vs. Lexington Law

rebuilding credit after bankruptcy will help raise your credit score

Maintain a Stable Job

Your credit score won’t be directly impacted by constantly changing careers, but it may have a long-term impact on lenders.

Given that you will need to be capable of repaying whatever loan you are given, lenders are going to want to verify that you’re making a living from a steady source of income. Changing jobs frequently will give the impression that you are untrustworthy.

Lenders will evaluate your salary and your current and previous employment over the last 24 months. They will also evaluate your credit rating, and other variables when considering your request for new credit or a loan.

Keep contributing money to a savings account as well so you are protected and can show solvency to lenders.

Just make sure you opt for a high yield savings account like this one from CIT Bank. This type of account has high interest rates that means your money makes money.

Therefore, maintaining a steady job will benefit you because it will increase the lender’s faith in your capability to repay the loan even after filing for bankruptcy.

Make New Credit Applications

Sadly, it is often more difficult to obtain new credit following a Chapter 13 or Chapter 7 bankruptcy than prior to it. Especially an unsecured card which most are.

At this time, rates of interest and costs might be increased, which would make it even more difficult to get accepted for new credit.

But, establishing new credit is one way of rebuilding credit after bankruptcy and raising your credit score.

To demonstrate that you’re a trustworthy borrower following bankruptcy, it’s imperative that you apply for new credit. You can begin observing your credit repair by establishing a solid record of on-time repayments.

When you are having trouble with your creditworthiness, applying for a secured credit card will help build credit if you are approved. In addition, obtaining a credit builder loan, starting a smaller loan, and/or employing retail and gas cards are all excellent options.

Keep in mind that while it helps your credit to have open cards and loans, you should try to avoid incurring future debt. Maintaining responsible credit behavior will go a long way to help building credit for you.

Apply for a Secured Credit Card

If you have had a bankruptcy filing, a secured credit card can help improve your credit and your credit report.

These cards require that you give them a cash security deposit, in most cases equal to the line of credit. The secured credit card holder gets to keep your cash deposit as insurance. But, this means they are much easier to get, even with bad credit.

Having and using one of these can help rebuild your credit and raise your credit scores. Here is a list of cards to consider.

Be Cautious When Applying for Credit Applications

A hard inquiry is made into your credit record in response to every new loan application. Lenders view too many frequent inquiries in a relatively brief amount of time as hazardous conduct, which might harm your credit.

Their restrictions might be too stringent for your present credit file if you’re consistently rejected for new credit cards.

Maintain a watchful eye on your score and be conscious of the underwriting requirements of the issuers, so you can make more informed credit applications.

You could also apply for an authorized user credit card or a secured card. Furthermore, you can register for a program that notifies the credit bureaus of your payments.

Over time, establishing a stronger credit history boosts your likelihood of getting authorized for credit cards with more stringent restrictions.

More Reading: Lexington Law Review

Consider Acquiring a Co signer/Registering as an Authorized User

After bankruptcy, being a co signer on a loan or lease contract may increase your likelihood of being approved. In the event that you default on any payments, a cosigner will stand in as your legitimate financial supporter.

Even with a cosigner, you can still be authorized for credit in your name, and keeping up with your repayments on these accounts can still raise your credit rating.

Additionally, you might apply to make use of another person’s line of credit as an authenticated person.

A family member or acquaintance may be happy to add you to their credit card account if you ask them to. Getting your name on someone else’s credit card is helpful.

If you don’t have someone to ask, you can actually pay to do this by purchasing a tradeline like these. It will help improve your credit reputation and add someone else’s good credit habits to your history.

As a result, as long as the credit card issuer confirms payments to the credit agencies, they should appear on both your credit record and their’s.

This simple act of registering as an authorized user on someone’s credit card is an excellent way to repair your credit after bankruptcy.

Request That the Credit Bureaus be Notified of Your Payments

It is crucial that you ask your creditors and lenders if they can disclose your activities to the bureaus on your behalf, given that they’re not automatically required to do so.

Any lender or creditor you engage with following bankruptcy must preferably provide a statement so that your good behavior is noted. This will help improve your rating.

Even payments that aren’t associated to credit, including rental and utility bills, might be disclosed to the credit bureaus. And in turn, these can help repair your credit after bankruptcy by raising your credit score.

Despite the fact that not all credit scoring models take these transactions into account when determining your score, having this additional credit information as a portion of your payment history won’t do you any harm.

Maintain Minimal Balances in Your Accounts

When you have a low credit card balance, you are utilizing a lower portion of your total credit limit. When you are working so hard to correct it, having a higher balance will reflect poorly on you and could lower your score.

As a result, credit experts will advise sticking with a credit usage ratio of under 30%. One sign that you will pay back what you borrow is a low credit utilization percentage.

Monitor Your Credit Report to Ensure Accurate Recordings

Your credit is severely harmed by bankruptcy, but unfortunately there are opportunities for mistakes that worsen the issue. For instance, showing debt as ongoing or overdue rather than cancelled could affect your credit reports even more.

This is why, following bankruptcy, you must be vigilant about reviewing your free credit reports. It is important to contest any inaccuracies as promptly as you discover them.

Users commonly become aware of incidents of inaccurate and unjust credit reporting. Take note that a Chapter 13 bankruptcy is removed from your record after seven years, and a Chapter 7 bankruptcy is removed after ten years.

Frequently Asked Questions (FAQs)

How long does bankruptcy Stay on Your Credit Report?

If you have filed Chapter 7 or Chapter 13 bankruptcy it will remain on your credit report for up to 10 years.

A Chapter 7 bankruptcy can remain on your credit report for up to ten years and a Chapter 13 bankruptcy can stay on your credit report up to 7 years.

How long does bankruptcy affect you?

Bankruptcy will impact your credit score until it is officially removed, up to 10 years depending on the type filed.

How much your credit score drops with bankruptcy depends on how high it was before you filed. If your credit was already bad, it may not drop that much whereas if you had good credit, the drop will be significant.

What is the Best Way to Build Credit AFter Bankruptcy?

In truth, you need to follow all of our tips above. But, if you want some quick hits, try first and foremost these tactics:

Obtain a credit builder loan
Get secured credit cards
Have a family member add you to their card
Purchase a tradeline

Final Thoughts on Repairing Credit After Bankruptcy

As long as you are careful with your expenditures, keep an eye on repayments for whichever credit you are able to take out, and keep your account balances low, you will begin to slowly build your credit back up.

The key here is to be responsible for your spending, and being cautious about repayments and expenditures. Keep at it, and you will slowly but certainly begin to see a positive change in your credit.

We hope you found this article helpful.