How to Rebuild Credit after Chapter 7 Bankruptcy

Filing for Chapter 7 bankruptcy can feel like a fresh start–your debts are wiped away and you get to begin again. But your credit score will take a big hit, making it harder to get approved for loans, credit cards, apartments, and more. Rebuilding your credit after bankruptcy takes time and effort, but it’s possible if you’re strategic. Here’s how to start rebuilding your credit and improving your score after a Chapter 7 bankruptcy.

Check Your Credit Reports

The first step is getting copies of your credit reports from Experian, Equifax and TransUnion. You can get free copies once a year from AnnualCreditReport.com. Review the reports closely to make sure all the discharged debts show a $0 balance or “included in bankruptcy.” If you see any errors or outdated information, file disputes with the credit bureaus to get them corrected.

Just remember–the bankruptcy itself will stay on your report for 7-10 years. But as that record ages, it will hurt your score less and less over time.

Begin Making On-Time Payments

After bankruptcy, focus on making all your payments on time going forward. Set up autopay for bills like rent, utilities, car loans, and student loans that weren’t discharged. Paying on time is one of the biggest factors in calculating your credit score. If you have any credit cards that you kept open, make at least the minimum payments on time each month.

You may have to start small, but establishing a pattern of on-time payments will help improve your score over time. Even if you can only afford to put a small amount on a credit card at first, charging something small each month and paying it off right away demonstrates responsible usage.

Build Up Your Savings

Having cash savings is important for anyone, but especially critical after bankruptcy. Build up even a small emergency fund of $500-$1000 if possible. That way you won’t have to rely on credit cards or loans to cover unexpected expenses going forward.

Research shows that having as little as $250 in savings for emergencies can help consumers avoid falling back into debt. So save whatever you can–every little bit helps.

Get a Secured Credit Card

After 12-18 months, you may be able to qualify for a new credit card. Your best option is likely a secured credit card, where you put down a refundable security deposit that becomes your credit limit. Use the card sparingly and be sure to pay the balance off in full each month.

This demonstrates you can handle credit responsibly. After about a year of on-time payments, you may be able to upgrade to an unsecured card and get your deposit back. Just be sure to close the secured account after upgrading so you don’t end up with two cards.

Become an Authorized User

Ask a spouse or family member with good credit to add you as an authorized user on their credit card. They don’t have to give you a card–just adding your name to their account can help build your score. As they make on-time payments, it will be reflected in your credit reports as well. But make sure they have low credit card balances since high utilization could hurt you.

Limit New Credit Applications

It’s tempting to apply for a bunch of new credit at once after bankruptcy, but too many applications can hurt your score. Apply for credit slowly and strategically. Space out applications by at least six months and focus on accounts you actually need. New credit inquiries stay on your reports for two years, so take it slow.

Monitor Your Credit

Sign up for free credit monitoring services like Credit Karma to keep tabs on your reports and scores. Dispute any errors you find immediately. You can also request free score updates from various lenders and credit card companies each month.

Watching your progress lets you track which strategies are working. Be patient–it can take up to two years to rebuild credit after bankruptcy.

Ask Creditors to Re-Age Accounts

If you have any existing credit accounts that are still open and in good standing, you can ask the issuers to re-age them to reflect the date they were discharged in bankruptcy. This essentially wipes the slate clean on any late payments prior to the bankruptcy.

Send goodwill letters asking creditors to re-age accounts to help you rebuild credit. There’s no guarantee they’ll agree, but it doesn’t hurt to ask.

Dispute Any Lingering Late Payments

If you see late payments from before the bankruptcy still showing up on your credit reports, dispute them. The bankruptcy discharge wiped out those debts, so the late notations should be removed. Submit disputes to the credit bureaus along with documentation the accounts were discharged in your bankruptcy.

This can help clean up your credit history after the damaging late payments.