How to Rebuild Your Credit After Declaring Bankruptcy[yoast-breadcrumb]
How to Rebuild Your Credit After Declaring Bankruptcy
Declaring bankruptcy can be a difficult decision, but sometimes it’s the best option to get out from overwhelming debt. The good news is that your credit doesn’t have to stay damaged forever – with some time and effort, you can rebuild your credit after bankruptcy. This article will give you tips on where to start.
Check Your Credit Report
The first thing you’ll want to do is pull your credit reports from the three major credit bureaus – Experian, Equifax and TransUnion. You can get free copies of your reports once a year from AnnualCreditReport.com. Review the reports closely and dispute any errors – mistakes on your reports could be dragging down your score.
Also look to see if any negative items are close to falling off your reports. Most negative information stays on your reports for 7 years, although a bankruptcy can stick around for 10. If you have any late payments or collections accounts that are almost 7 years old, they’ll disappear from your reports soon which can give your score a boost.
Start Making On-Time Payments
Payment history makes up a significant part of your credit score – 35% according to FICO. That means going forward, it’s crucial that you make all your payments on time, whether it’s your car loan, mortgage, credit cards or other bills. Setting up autopay can help ensure you don’t miss any payment deadlines.
You should also keep credit card balances low – high balances can negatively impact your credit utilization ratio, which is 30% of your FICO Score. Try to keep balances below 30% of your credit limit on each card.
Consider Getting a Secured Credit Card
Since your credit has taken a hit, you may need to start rebuilding with a secured credit card. This type of card requires a cash deposit upfront that acts as your credit limit. Charges to the card are reported to the credit bureaus like a regular card. Just be sure to make on-time payments so it helps build your score over time.
After about a year of responsible use, you may be able to upgrade to an unsecured card and get your deposit back. NerdWallet has a list of top secured cards to consider: https://www.nerdwallet.com/best/credit-cards/secured
Apply for Credit Builder Loans
Credit builder loans allow you to demonstrate responsible credit behavior. You receive the loan amount upfront, then make monthly payments. The loan payments are reported to the credit bureaus.
One option is a credit builder account from Self Lender – you make monthly payments to your own account for 1-2 years, then receive the money you paid in. Here’s more info: https://www.selflender.com
Ask Someone to Add You as an Authorized User
If you have a friend or family member who has a long credit history and good payment record, ask if they’re willing to add you as an authorized user on one of their credit cards. This can give your credit a boost by letting their good history get reported on your credit reports.
Just make sure they only give you access to the account for credit building – don’t actually charge anything yourself unless you can pay it off right away.
Only Apply for Credit You Need
It can be tempting to apply for a bunch of credit cards at once as you try to rebuild your credit. But each application causes a hard inquiry on your report, which can ding your score a bit. Try to only apply for the credit accounts you truly need for now.
Monitor Your Credit Score
Sign up for a free service like Credit Karma to monitor your credit score. This lets you see in real time as your score starts to improve with your credit building efforts. Monitoring also alerts you if any suspicious activity pops up on your reports.
Rebuilding your credit takes time – often at least a year before you’ll see significant improvements. But if you consistently make on-time payments, keep balances low, and limit new credit applications, you should see your score start to creep back up. Be patient and persistent.
The most important thing is developing good financial habits for the long haul. If you stay disciplined about managing credit responsibly, your credit score will reflect that over time.