Bankruptcy Debt Help

5 Post-Bankruptcy Mistakes to Avoid

Written by Rebecca Lake

When you’re swamped with debt, filing for bankruptcy may be the only way to get out of the mess. There’s a downside, however, since your credit’s going to pay the price. Once your case has been discharged and you’re on the road to recovery, undoing the damage to your score should be a top priority. There are, however, some key missteps you’ll want to steer clear of along the way.

1. Not Checking Your Credit Report

After your debts are wiped out in bankruptcy your creditors are supposed to report it to the credit bureaus. Generally, each of the debts that were included should show a zero balance and include a note that they’ve been discharged. If you’re not following up to make sure that’s the case it could come back to bite you.

If a debt is still being reported as a charge-off or an open account, late or missed payments will continue to show up on your credit. Since your payment history accounts for 35 percent of your FICO score, that’s just going to knock off even more points that you can’t afford to lose.

The other issue is that you could run into a roadblock if you try to apply for a new loan or line of credit. If a lender sees what looks like an open account with a balance owing, they may expect you to pay it before you can be approved.

2. Applying for New Credit Too Soon

After filing bankruptcy it takes some time for your score to rebound to the point where you can start applying for new credit. Typically, the impact is strongest in the first 12 months although a bankruptcy filing can stay on your credit for up to 10 years.

Trying to fast-track things by rushing out and applying for a bunch of credit cards or loans in a short span of time can actually work against you. Inquiries count towards 10 percent of your FICO score and you stand to lose roughly five points every time a lender checks your credit.

That may not seem like a lot but if your score is already in the low 500 range because of the bankruptcy, multiple inquiries aren’t going to help things. You’re better off waiting out the first year and using that time to research what kind of credit card offers are out there.

3. Choosing the Wrong Credit Card

Not all credit cards are created equally and some are better than others when you’re trying to rebuild credit after bankruptcy.

Depending on how much of a hit your score took, you may only be able to get a secured card at first but you need to be picky about the one you choose.

Some secured card issuers don’t report your account activity to the credit bureaus or they limit which ones they share information with. If you’re paying your bill on time and keeping what you charge to a minimum, you want to make sure you’re getting credit for it on your report.

You should also look at whether a particular secured card offers the option to convert to an unsecured card if you establish a positive payment history. Unsecured cards tend to come with fewer fees and you may be able to get a higher credit limit.

The interest rates may still be on the high side so you’ll need to make sure you’re paying in full each month to avoid paying extra for the things you charge.

4. Buying into Credit Repair Scams

Credit repair companies make big promises to consumers about being able to work miracles with your credit but more often than not, that’s just a cover for a scam. These companies rely on the fact that people often don’t know much about how credit works to lure them in and swindle them out of their cash.

In some cases, their tactics may be illegal. For instance, a company may tell you that they can sell you a new Social Security number that you can use to create a new credit history. What they don’t tell you, however, is that you can end up in jail if you try it and you’ll likely just end up hurting your credit even more.

5. Not Practicing Good Financial Habits

When it comes to improving your credit after bankruptcy, all you really need to do is go back to basics. Simple things like paying your bills on time, keeping the amount of debt you’re taking on to a minimum and spending less than what you earn are the foundations of any solid financial strategy.

If you filed bankruptcy because you had a problem with sticking to a budget or you were just lousy at keeping up with due dates, those are things you need to correct so history doesn’t repeat itself. Rehabbing your credit after bankruptcy takes time but you can speed things along if you’re able to identify and address the issues that lead to your filing in the first place.


About the author

Rebecca Lake

Rebecca Lake is a personal finance writer and blogger specializing in topics related to mortgages, retirement and business credit. Her work has appeared in a variety of outlets around the web, including Smart Asset and Money Crashers. You can find her on Twitter at @seemomwrite or her website,

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