Bankruptcy takes its toll on your credit report. However, it is important to take steps to rebuild your credit as soon as possible after bankruptcy.
You’ll want to take steps to dispute any errors on your credit reports, as well as look for other possible ways to improve your score in the short-term to help unlock more long-term options.
How bankruptcy affects your credit
While filing bankruptcy is unavoidable in some cases, it does cause lasting damage to your credit report and credit score.
Depending on how you file bankruptcy, it may stay on your credit report for 7 or 10 years
With that said, when the bankruptcy process is over, it is important to start building your credit as quickly as possible. In many cases you can build up and repair your credit score long before the bankruptcy ever falls off your report.
Now we'll take a look at six ways you can start rebuilding your credit starting today.
1. Comb through your credit reports for errors
Mistakes happen. Although credit companies and bureaus have their own system of checks to prevent mistakes in reporting, at the end of the day, errors can still appear on your credit report. Depending on what these errors are, they may cause a significant difference in your credit score.
During and after the bankruptcy process, it can help to go through your reports regularly to be sure everything is being reported correctly. This includes:
Checking that all discharged accounts have a $0 dollar balance
Checking to be certain that all accounts included in the bankruptcy are correctly reported as discharged
Ensuring the date of the bankruptcy is correct, as the bankruptcy stays on your records from up to 10 years from this date
Should you find any errors on your credit report, file a dispute with the necessary credit bureau. The bureau then has 30 days to properly respond to the dispute and fix incorrect items. Depending on what is removed or changed, you may notice a change in your credit score.
2. Ask for payments to be reported to bureaus wherever possible
In a lot of ways, bankruptcy is starting from square one. With that said, you should look for ways to get healthy credit history on your reports as soon as possible to start building your credit back up.
One simple way to do this is to ask your landlord to report on-time rent payments to the credit bureaus each month. This positive information can put you on the right track towards a better credit history, and it does not hurt to ask. Landlords are not required to do so, however, so keep this in mind.
You should also be aware that not every credit scoring model will use rental information. You can never be certain which credit scoring model a lender uses without asking them directly, so you may want to ask before applying for a loan or line of credit.
3. Get a secured credit card
A secured credit card may be the ideal way to start building your credit score back up, especially if you are serious about repairing your credit. Most people will still qualify for a secured credit card, as they use your own money as collateral so there is very little risk to the creditor.
A secured card takes a deposit from you upfront, usually 200 or 300 dollars to start. The creditor then gives you a line of credit worth that amount., You make purchases with the card and then make monthly payments, which will get reported to the credit bureaus and help improve your score.
4. Consider retail credit cards
Some retailers may still offer you a credit card after a bankruptcy, as they don’t have very strict requirements in most cases. However, keep in mind that many have high interest rates and steeper fees than many other options.
If you are aware of the downsides and act responsibly, a retail card may be a great tool to help you start getting positive credit history back onto your account.
5. Take out a credit-builder loan
Credit-builder loans are designed for just that – building credit. They do have their limitations. For instance, they are not good in cases where you need money instantly, as that is not their purpose.
With a credit-builder type loan, instead of lending you money up front, the lender essentially opens a locked savings account in your name. You make payments to them, which they report to the credit bureaus. The creditor then puts the money into the account. When the loan terms have been fulfilled, the lender gives you the money you have accumulated.
6. Become an authorized user on someone’s account
In these cases, the owner of the account adds your name to their credit line. Positive account history will affect both of your credit reports, and can help build your credit score.
You’ll want to be careful here, because negative information will also make its way to your account as well. This is why it is very important to only become an authorized user on an account you can trust, such as a parent or close friend.
Also keep in mind that some credit companies will not report information for authorized users to the credit bureaus. Always ask that they do before continuing.
Bankruptcy is a hassle. The event itself can take time, and bankruptcy will stay on your credit report for up to 10 years, reminding you of you past credit mistakes.
With that said, it is possible to rebuild your credit after bankruptcy. Monitoring your credit reports and making all payments on time are two sure ways to get the ball rolling. The next step is to consider credit-builder loans or other secured credit options.