10 Ways to Reestablish Credit after Filing for Bankruptcy

After bankruptcy, many might think that their credit is forever ruined, destroyed by the circumstances of an unexpected tragedy or even just bad choices. Luckily, this is absolutely not the case. Even after filing for Chapter 7 bankruptcy, some people have gone on to build exemplary credit. Through hard work and due diligence, even the worst credit score can be restored. The tips below are just a few things anyone can do to repair the damage brought on by bankruptcy.

1. Acquire Credit Reports

   The first thing anyone who is planning to rebuild their credit should do is know where their credit stands. That means contacting the credit credit bureaus—Experian, Equifax, and Transunion—to get full credit reports. By law, anyone can get these free each year, and it is important to keep track of the information in these reports. Any discrepancies should be addressed immediately by contacting the credit bureaus and disputing the errors. Being informed and aware of one’s credit score allows an individual to know the best course of action to reestablish credit after filing for bankruptcy.

2. Seek Out Credit Counseling

   Speaking with an expert can help an individual develop a plan for rebuilding credit after bankruptcy that fits his or her lifestyle and credit history. Credit counseling can provide education on proper debt management and introduce strategies for building and sticking to a budget.

3. Develop a Relationship with a Local Credit Union

   Credit unions can be great for anyone with a troubled credit history as they can provide financial guidance, easy credit, and more available loans than most large banks. Finding one near you can give you the opportunity to establish new credit with a more personal touch.

4. Accept a Pre-Approved Card

   There are some dangers in accepting a credit card solicitation, such as high interest rates and excessive fees, but even after bankruptcy, the offers won’t stop arriving in the mail. In fact, they might increase as companies know individuals are desperate to rebuild credit after a bankruptcy. Be careful and select only offers with the best rates.

5. Apply for a Card with a Low Limit

   It might seem inevitable that any application for a credit card will automatically be rejected, but it is possible to find a card that fits everyone’s needs, even after bankruptcy. Shop around, and don’t forget to check with the local credit union. Try to select a card with a limit of $200 – $500.

6. Secured Credit Card

   Secured credit cards are available with a deposit that a creditor will get to keep if an individual fails to make monthly payments on the card’s balance. This can give the creditor insurance on any debt incurred, and the consumer gets to rebuild credit for an up-front price. Secured cards may not always be reported to credit bureaus, so it’s important to find one that is reported for on-time payments as well as any missed payments.

7. Get a Cosigner

   If an individual has a friend or relative with strong credit, it can be possible to have them cosign a loan with a less credit-worthy individual. The bank has the security that the cosigner will pay back the amount, and so long as all payments are on time, both signers get to improve their respective credit scores. If possible try to get a loan without a cosigner as this will improve credit faster.

8. Secured Loans

   Secured loans are loans made against a piece of collateral, such as a car, land, or sometimes even jewelry. These are risky as any failure to pay will result in the bank repossessing that collateral. The rates for a secured loan are generally better than an unsecured loan though.

9. Buy a CD with a Loan

   One great thing to do with the loans described above is to purchase a CD or Certificate of Deposit. As the borrower makes all loan payments on time, the CD matures, and the borrower earns interest.

10. Keep Low Balances and Pay on Time

    Whatever new line of credit an individual finds, it is even more important after a bankruptcy to make all payments on time and keep low balances. Sixty-five percent of a credit score is made up by payment history and the amount of available credit in use. By keeping up with payments and keeping those balances to a minimum, credit can be restored in no time.

It is possible for even the least credit-worthy to improve their credit scores. There’s no magic formula and no substitute for patience and hard work, but you can reestablish credit after filing for bankruptcy.

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