It might seem impossible, but you can rebuild your credit after bankruptcy. It’ll take time and diligence on your end, but with patience and persistence, you will have good credit again. If you decide to file for bankruptcy, here are some tips to positively impact your credit.
Best ways to rebuild credit after bankruptcy
Check your credit report
Annualcreditreport.com gives you access to your credit report every year for free. Like most people, checking your credit report could seem tedious, but it is also imperative. This free credit report allows you access to your report from each of the three credit bureaus, Transunion, Experian and Equifax. You should review your reports for errors and confirm that your bankruptcy filing removed the correct information from your credit report.
Monitor your credit score
Monitoring your credit score has been made simple with many mobile applications and creditors allowing customers to view their score through their bank or credit card. However, it is essential to note that checking your credit report does not provide access to your score, which is equally as important.
Repairing your credit after bankruptcy can also involve watching your score improve over time. Your score could drop between 130 to 200 points after filing for bankruptcy depending on your pre-bankruptcy score. You want to monitor your score to see if it starts improving.
Consider credit builder product
When your score can drop as much as 200 points, it might be challenging to qualify for new loans or credit cards after filing for bankruptcy. However, challenging does not mean impossible. Certain products can help build your credit while understanding that you might be starting with a low credit score. These products are designed to provide credit-building solutions to those who are repairing their credit after bankruptcy.
Secured loan or credit-builder loan
A secured loan or a credit builder loan are excellent options for someone who might be struggling to find the credit approvals needed to improve their credit. In most cases, a secured loan does not require a credit check, so if your credit score is still low, there is no need to panic. When using a secured loan, you provide the lender with some form of collateral; in some cases, it is cash. Once the loan is paid back, not only is the lien released, but you have built your credit as long as you have made your payments on time.
Secured credit card
Secured credit cards have similar principles to a secured loan. With a secured credit card, collateral is a cash amount that you provide that also works as your credit limit. In most cases, you put down $500, and when you use your credit card, you pay it back towards the $500. Your secured credit card is reported to the credit bureaus, which, as long as you make your payments on time, will significantly boost your credit. Secured credit cards also help against overspending because you can not spend more than the money you put down.
Take on a co-signer for a credit card or loan
Have someone willing to help you get approved for a loan? Ask them if they are willing to be co-signer for a credit card or loan. Being a co-signer could be a big ask for someone. A co-signer agrees to take full responsibility for the debt should you fail to pay. Only take this step if you know you can afford the payments.
Become an authorized user
Much like asking someone to be a co-signer, asking to be an authorized user on a credit card means you trust they will make their payments on time. Similarly, they trust that you will use their credit responsibly. For example, when you are an authorized user on someone’s credit card, their credit card payments and utilization rate is reported on your credit report. You also have access to using their credit card as if it was your own. You will not be able to make any changes to their account, though. So, again, make sure you can afford the payments and ensure their account is in good standing.
Rebuilding and maintaining your credit after bankruptcy
It might seem far off, but you can rebuild your credit after bankruptcy. Once your credit is back in good standing, you want to put as much effort as possible into maintaining it. It is important to follow the best credit practices to get your credit to a good place and keep it there.
Make payments on time
Making your payments late is an easy way to undo all the hard work you put into your credit score. Make sure you stay on top of your payments by either setting up automatic payments or setting reminders to make sure you make your payments on time.
Keep your credit card balances low
Credit utilization, the amount of credit being used divided by the total revolving credit you have available, can have a 30% influence on your credit score. Keeping your credit card balances low keeps your credit utilization low and ultimately positively impacts your credit score. A low credit utilization rate, no more than 30%, shows creditors that you can manage your spending by keeping your usage low.
Stick to a budget
Sticking to a budget is a great way to keep your credit utilization low. Avoid overspending and relying on your credit cards. Maintaining a budget helps you allocate funds appropriately and can help you save for an emergency fund or pay off debt. Set a realistic budget for saving and leisure spending so you don’t feel deprived.
Avoid opening too many new accounts at once
As your score improves, you will begin to receive new financing offers. Some may be pretty tempting. Try to avoid opening too many new accounts at once. Too many credit inquiries can lower your score and look alarming to creditors. Be selective when considering a new account.
Building your credit after bankruptcy takes time, so try to be patient. It might feel like it’s taking forever. Still, in reality, your credit score typically gets updated every 30 to 45 days, and a lot can happen in that time. So check your score but try not to feel discouraged if it doesn’t change daily.
How long it takes to rebuild credit after bankruptcy
Sometimes it can take up to two years to improve your credit after bankruptcy. If your credit score was in the higher range before filing for bankruptcy, it might take a further dive than someone who was not ideal. A more considerable drop could mean it’ll take longer to rebound.
How long does it take to rebuild credit after Chapter 7?
When you file for Chapter 7 bankruptcy, it can stay on your credit for 10 years. Don’t be alarmed. The impact does decrease as time passes. Usually, a few months after filing, you can start getting credit approvals and work on building your credit.
How long does it take to rebuild credit after Chapter 13?
Chapter 13 can stay on your credit for about 7 years, but the repayment plan will take 3 to 5 years to pay off. However, once paid off, you will usually see an improvement in your credit opportunities.
Trust the process
Building your credit after bankruptcy is a process, but you need to trust it. Stay on top of your credit report and score, keep your credit utilization low, avoid overspending, pay bills on time and create a budget. Once your credit rebounds, you want to keep it that way.
Can I get to an 800 credit score after bankruptcy?
It might take some time and work, but you can get an 800 credit score after bankruptcy.
Can I build credit fast after Chapter 7?
There is no quick way to boost your credit after filing for Chapter 7, but you could work to improve your score over 12 to 18 months after filing.
What’s the fastest way to build credit after bankruptcy?
The fastest way to build your credit after bankruptcy is to monitor your credit report and score and stay on top of payments. Also, be patient. It can take time to boost your credit even if you do everything correctly.