How To Rebuild Your Credit After Bankruptcy
Bankruptcy is generally used as a means of last resort when consumers face overwhelming debt with no relief in sight. Once you get through the process, your credit report will reflect your filing for a number of years, but will this prevent you from rebuilding your credit and being able to get a car loan, mortgage, or credit cards?
You do have to be proactive in rebuilding your credit. Getting a job with a reliable income is an essential first step in any credit rebuilding process. Some other ways to build your credit score include the following:
- Pay your mortgage and bills on time since payments made late are reported to the three credit reporting agencies.
- Avoid applying for unsecured credit cards for about two years. Repeated attempts can be reported to the credit bureaus and can adversely impact your score and could scare off lenders or issuers of unsecured cards because you have a troubled credit history.
- Get a secured or prepaid credit card. These cards are used like any other credit card except you will not have to make monthly payments; only load the card once the prepaid amount is used up. First, check with the issuer of the card that your use of it is reported to the credit bureaus and that it will not be reported as a secured card since it could alert creditors about your poor financial history.
- If you need or want an unsecured card, have the issuer’s credit offer evaluated by a credit counseling agency.
- You can obtain one free copy of your credit score each year from each of the three credit bureaus. Get one every 6 months to see if your scores are increasing and to check and fix any reporting errors.
- If you do get an unsecured credit card, be sure no balances remain each month so that your credit score will improve much more quickly.
- Open a savings account or a certificate of deposit (CD) and make regular contributions to it or set up an automatic payment plan. A lender will consider this in qualifying you for a loan and the interest rate to be charged.
- Many car dealers offer favorable terms to consumers who have been through bankruptcy. Compare their terms with other dealers and try to make as high a downpayment as possible to reduce the interest rate.
Being diligent and making a conscious effort to reestablish your credit and not overextending yourself will get your credit scores to a reasonably high level in a shorter time.