Filing for bankruptcy doesn’t mean you’ll never qualify for credit again, though it may feel that way. With hard work and responsible spending, you can rebuild your credit rating to a lever that once again allows you to obtain credit. The first two years after bankruptcy are the most difficult to obtain credit with decent interest rates. However, with each positive mark on your report, your credit score begins to rise. You’ll be eligible for new credit, loans and mortgages with better rates and terms. Here are nine steps you can take to help rebuild your credit after bankruptcy. 

1. Keep Up Payments on Remaining Debt

After you file bankruptcy, determine which debts you still retain and know the payment schedules. Bankruptcy cancels much of your debt, but some may remain, such as student loans and some vehicle loans. If you have debt relating to a credit union credit card, it may also remain after the bankruptcy is settled. Making regular payments – on time – on these debts is imperative and one of the most important steps you can take to start rebuilding your credit score. 

2. Apply for New Credit

It seems counter-intuitive, but applying for new credit to improve your credit score is a good idea. After a chapter 7 bankruptcy, it can be more challenging to get low-interest rates and fees, and your approval may not be automatic. But it is vital to slowly begin to obtain new credit and keep it in good standing to show lenders that you are a responsible borrower. Building up a new history of on-time payments gives your credit score the boost it needs to start moving it in the right direction. With any new credit you obtain, make sure the company reports to the three major credit bureaus: Experian, TransUnion and Equifax to get the most benefit. 

Here are some examples of credit you can apply for after bankruptcy. 

Apply for a secured credit card: Secured credit cards are require a cash security deposit (e.g., $1,000 deposit = $1,000 credit limit). By making the payments regularly and on time, you can rebuild your creditworthiness. Eventually, the credit card issuer may increase your credit limit or offer you a regular, unsecured credit card product.

Retail and gas cards: Retail credit cards typically have less stringent qualifications than other unsecured cards. Once you’re accepted, make small purchases, like a tank of gas here and there, and be sure to pay the balance every time, on time.

Open a small loan: Managing a loan with fixed payments, like an auto loan or home equity loan, shows creditors that you can borrow responsibly. The interest rates offered to you will likely be higher after bankruptcy, but the cost may be worth it to help rebuild your credit. 

3. Consider a Cosigner or Becoming an Authorized User

Having a co-signer on a loan or rental agreement can help your chances of approval after bankruptcy. A co-signer acts as a legal, financial backer in case you don’t make payments. Auto loans, mortgages and even rental agreements often accept co-signers. With a co-signer, you’re approved for credit under your name. Successful payments boost your creditworthiness and your credit score. But be careful! If you fail to make the payments on-time, it will not only affect your credit score but could also affect your co-signer’s credit score as well!

Another possible option is to become an authorized user on someone else’s credit card. If a family member or friend agrees to add you to their credit card account, you can work to improve your scrid score. Payments appear on your credit report, provided the credit card issuer has a process for providing them to the credit bureaus. 

4. Be Smart About Where You Apply

Every credit application results in an inquiry on your credit report, also known as a hard inquiry. Too many hard inquiries in a short time throws up flags for the lenders and hurts your credit score because it is viewed as risky behaviour. So, if you’ve been denied a new credit card, the requirements may just be a little too high for your current credit profile. Keep an eye on your credit, and be aware of the issuer’s underwriting standards so that you can apply for credit more wisely.

5. Keep Up Payments with New Credit Cards

Your payment history is the most important factor that impacts your credit score. It’s crucial, especially after bankruptcy, to make timely payments on any remaining and new credit. There are several things you can do to make it easier to stay on top of payments:

  • Enrol in autopay plans when available.
  • Make payments immediately after you make a purchase or multiple times a month.
  • Set calendar reminders to make payments in advance of the due date. 
  • Arrange your personal finances to help you pay off the entire balance each month.

When recovering from bankruptcy, it can seem impossible to get your credit score back into better shape. It may not be quick, but with some diligence and patience, you can do it. Have questions about bankruptcy or wondering if it is the right solution for you? Contact Stephanie Krane-Boehmer at 248-293-0048 to learn more.