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How to Rebuild Credit After Bankruptcy

Susan McCullah
Written by Susan McCullah

Dealing with a bankruptcy is a painful, stressful life event. Once it is discharged, a bankruptcy shows up on your credit report, and your credit scores are likely trashed out.

In the short term, a bankruptcy discourages creditors from lending you money, but all is not lost. With a little patience, lots of self-control, and smart budget management, you can rebuild your credit after a bankruptcy, faster than you realize. Here are four smart steps to do it.

#1: Open a secured credit card.
While creditors may not be interested in outright loaning you money, a secured card is a way to begin building a positive credit history after bankruptcy. A secured card is “secured” with a deposit that you make when you open the account. For example, the credit card may offer you a $300 limit, with you forking over a $300 deposit. After you have paid on time for a few months, the credit limit increases. Over time, the credit card company may refund your initial deposit to you.

Secured credit cards report to all three major credit bureaus, so they are smart ways to begin building up credit history and payment history, which are both components that increase your credit score.

In addition to a secured credit card, you should also think about…

#2: …getting added on a joint credit card.
Perhaps a spouse, parent, or close friend would be willing to add you as a joint user on one of their lines of credit. This offers an advantage over the secured credit card of not being required to pay a deposit. However, the person who does this for you must be willing to trust that you will manage the credit line wisely.

Keep in mind you ARE responsible for the debt as a joint user, and the credit line will show up on your credit report. Managed wisely and paid promptly, a joint credit account adds to your credit history and helps rebuild your credit status.

Another way to get added on an account is by…

#3: Becoming an authorized user.
If you have a parent or spouse who will add you on their credit card as an authorized user, you are able to take advantage of their entire credit history. This is great news if they maintain a high credit score, because it can help you rebuild your credit fast and relatively easy. Make certain that the person has a long, lengthy credit history and a low balance before you are added. As an authorized user, you are not responsible for the debts incurred, and can be removed by the main user at any time.

#4: Small bank loans.
If you have a relationship with your bank or credit union, you may be able to take out a small installment loan and pay it back over time. Make certain you can make the payments on time before you choose this option, and the bank needs to report to all three credit bureaus. Over time, this payment history will built toward stronger credit scores.

In addition to these specific actions, it’s crucial that you remember key points to rebuilding your credit after a bankruptcy.

Don’t be afraid of credit.
Many consumers who ended up in debt veer the complete opposite direction after a bankruptcy and vow to never have another credit card. This avoidance won’t help you rebuild your credit.

Managed wisely, credit is a positive aspect of your financial life. A credit history helps creditors weigh your credit worthiness, and determine whether or not you can land loans for a home, car, and other essentials.

Watch your inquiries.
The credit scoring model is designed to watch consumers with recent bankruptcies closer than those who have long, positive histories of smart credit management. Multiple inquiries will hit you harder, because the scoring model looks at them as red flags (oh no, she is running herself in debt again!).

Practice great care in letting your credit be pulled too many times, and avoid opening too many new accounts in a close time period. One or two accounts per year should be your max.

Review your credit report.
Unfortunately, credit reports are compiled from tons of data points, and can end up with errors. Pull your credit through a consumer credit platform and examine each line closely. If there are debts that should have been included in bankruptcy but are still showing as open, dispute this information with the bureaus. The last thing you want is for an old debt to be hanging on, ruining your credit, when it should have been written off in your bankruptcy.

Pay on time.
Once you have one or more lines of credit open, diligently, obsessively pay them on time. Just one late payment can erase six months of positive progress in rebuilding your credit. Either set up reminders on your smartphone, or schedule your payments in advance. Payment history makes up 35% of your credit score, so it is virtually impossible to build your credit up without paying your credit obligations on time.

Avoid the same old path.
There is obviously a reason why you had to file for bankruptcy. Maybe it was an illness, a divorce, or a series of bad investments. Maybe your debt careened out of control from overspending. Take some time to analyze how it happened, and commit to avoiding those behaviors now and in the future.

Rebuilding your credit after a bankruptcy takes a bit of time and patience. It can be intimidating to know which actions to take to gain a high credit rating. The good news is it is completely possible to attain a great credit score within 2 years, if you manage your debt responsibly, check your credit report often, and begin using credit again.

About the author

Susan McCullah

Susan McCullah

Susan is an established writer who has created dozens articles about credit scoring, identity theft, budgeting, and finance. She has worked in the Credit Reporting industry for 10+ years, and is FCRA certified. She has conducted presentations and webinars on the topics of credit scoring formulation, raising credit scores, and credit score mistakes.

9 Comments

    • What gives a business Large or Small the Rite to destroy your Credit Rating and possibly under some situations cost you tens of thousands of dollars over a 20 to 30 year mortgage on a house or business ?? And is there anything that makes them Sue-Proof for illegitimately damaging your credit rating ? This is a Very Serious question on this subject and it seems there should be several laws protecting the average American in the USA giving the Wronged Credit applicant the ability to strike back against a business granting credit and agencies reporting credit if they are unfair or just sloppy in creating and reporting Credit scores ? And Who are We are asking this / these questions, Who made up what parameters determine if I have a good on Time Payments record etc. and how is it determined Who is allowed to be put in these positions that could be used to Blackmail etc. !!

  • My mother made me an authorized user on her account. It’s important to note that it takes about 3 months for the credit jump to take affect. If you’re thinking of adding someone as an authorized user please note you don’t have to give them the card. That way your credit isn’t at risk.

  • Hello, I am a subscriber. Recently I tried to re-fi my primary mortgage, I was turned down. I was informed that I needed to remove a foreclosure off of my credit report. How do I do that?. Thank you, Byron

  • I would like to say thanks for your remarkable knowledge that you have been sending me.
    I say to you a sincere thanks and keep up the good works.

  • How can I remove a lien for a civil judgment that was discharged recently through bankruptcy? The law firm will not sign a release of judgment lien full release.

    • You can write the credit bureaus directly. They will discharge the lien as long as you provide proof of payment in full.

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