Rebuilding Your Credit After Auto Loan Discharge in Bankruptcy

Filing for bankruptcy can feel like a fresh start–you get to wipe your slate clean of debt that was dragging you down. But it also means your credit score takes a hit, and lenders may see you as a riskier borrower than you were before. Rebuilding your credit after bankruptcy takes time and discipline, but it’s doable if you know the right steps to take.

If your auto loan was discharged through your bankruptcy, you now have the chance to get a car without the baggage of your old loan. But you’ll need to reestablish your credit first. Here’s how to go about rebuilding your credit score and getting back on the road after auto loan discharge in bankruptcy.

Check your credit report

Before you can start repairing your credit, you need to know what shape it’s in. Get a copy of your credit report from each of the three major credit bureaus–Experian, Equifax, and TransUnion. You can access these for free at AnnualCreditReport.com. Review your reports closely to ensure all discharged debts, including your auto loan, are marked “included in bankruptcy” so they won’t negatively impact your score moving forward.

Monitor your credit score

In addition to checking your credit reports, monitoring your credit score regularly is key to understanding how your credit is recovering over time. Many credit cards and personal finance websites offer free credit scores and credit monitoring services. Tracking your score lets you see improvement and identify any issues you need to address.

Become an authorized user

Ask a family member or friend with good credit to add you as an authorized user on one of their credit cards. This gives you a credit history boost from their account activity. Just be sure they make on-time payments so it doesn’t damage your credit further. If you go this route, make sure the card issuer reports authorized user activity to the credit bureaus.

Get a secured credit card

Applying for new credit too soon after bankruptcy may be difficult, but a secured credit card can help. These require a cash deposit upfront that acts as your credit limit. Charge small purchases each month and pay off the balance in full to show lenders you can handle credit responsibly. After about a year of on-time payments, you can try upgrading to an unsecured card and get your deposit back.

Become an account holder

If you share expenses with a partner, spouse, or roommate, consider becoming an account holder on their credit card or utility bills. This builds your credit history by showing you can make timely payments. Just be sure they don’t carry balances, or you could end up hurting your score instead.

Take out a credit-builder loan

Credit-builder loans allow you to demonstrate responsible repayment of installment (fixed) debt. Your loan payments are reported to the credit bureaus each month. And the money you borrow goes into a savings account that you receive back at the end of the loan term, plus any interest earned.

Apply for a car loan

Once you’ve built up your credit a bit, it may be time to apply for an auto loan. Focus on used cars to get approved for a smaller loan amount. And shop around for the best rates, since lenders will likely charge higher interest due to your bankruptcy. Making timely payments shows you’re committed to improving your credit.

Keep old accounts open

As long as they don’t charge annual fees, keep old credit card accounts open after bankruptcy. This preserves the age of your credit history. You don’t need to use them, just leave them open and active.

Limit new credit applications

Each credit application causes a hard inquiry on your report, which can ding your score a bit. So avoid applying for multiple new credit accounts in a short period of time. Space out applications by several months to limit the impact of hard inquiries.

Rebuilding credit takes diligence, but it pays off over time as your score improves and makes financing easier to obtain. Monitor your progress frequently, and continue practicing good credit habits. With consistent effort, you can recover from the hit of bankruptcy and auto loan discharge.

Helpful Resources

• NerdWallet: How to Rebuild Credit After Bankruptcy
• Forbes: 7 Easy Ways to Rebuild Your Credit After Bankruptcy
• Debt.org: How to Rebuild Your Credit Score After Bankruptcy
• Lexington Law: 9 Steps to Rebuild Your Credit After Bankruptcy