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Steps to Rebuilding Your Credit After Bankruptcy

Steps to Rebuilding Your Credit After Bankruptcy

Your credit can take the biggest hit after bankruptcy - the negative sign can stay on your credit report for ten years. But you can rebuild your credit with hard work and responsible spending.

With each positive sign in your report, your credit score begins to rise. You will be entitled to new loans, financing, and mortgages at better rates and terms. Here are some steps to rebuilding your credit after bankruptcy.


Keep payments in non-bankrupt accounts.

After filing for bankruptcy, determine which accounts have not been closed. Bankruptcy frees you from a lot of your debt, but you usually have debt left, like student loans or child support payments.

Repair your credit after bankruptcy by paying off these balances. This lowers the debt ratio and should boost your credit. To speed up your progress, pay more than your minimum monthly payment when you can. Timely payment is essential for getting good credit.


Avoid changing jobs

Changing jobs does not directly affect your credit score, but it can affect creditors. They want to know if you have a reliable income and if you can repay the loan.

When reviewing your new loan or loan application, your lender will consider your income, 24-month work history, credit rating, and other factors. Having a stable job works in your favor, increasing the creditor's confidence in your ability to repay the loan even after bankruptcy.


Apply for a new credit

It is often more difficult to get new credit after Chapter 13 or Chapter 7 bankruptcy. Interest rates and fees can be higher, and it can be more difficult to get approval.

But getting new credit after bankruptcy is essential in proving that you are a responsible lender. Building a positive payment history on time gives your credit score the positive history you need to start pushing you in the right direction. With any new credit, make sure the business reports to the three major credit bureaus: Experian, TransUnion, and Equifax.


These are the best ways, in our experience, to get new credit after bankruptcy.

  • Apply for a Secured Credit Card: Secured credit cards are easier to obtain than unsecured credit cards because they require a cash deposit (e.g., $1,000 deposit = $1,000 credit limit ). By making timely payments, you can rebuild your credibility. Over time, your credit card issuer may increase your credit limit or offer you a regular unsecured credit card.

  • Get a credit builder loan: With a credit builder loan, you pay the lender before you get the money. These are typically small loans between $500 and $5,000. After making the advances, you will receive the amount in cash.

  • Open a small loan: Fixed payment accounts payable, like a car loan or home loan, show creditors that you can take out a loan responsibly. Interest rates may be higher after bankruptcy, but the cost of rebuilding credit may be worth it.

  • Retail and Gas Cards: These types of credit cards tend to have more favorable ratings for consumers than other unsecured cards. Know your standards before you apply, as applying can damage your credit. If it is not accepted, you will not get the effect you are looking for. Make some small purchases, like a few cans of gas, and be sure to pay the balance off.


Consider a co-signer or becoming an authorized user

Having a co-signer on loan or lease can increase your chances of getting approval after bankruptcy. A co-signer acts as legal counsel in the event of non-payment. Auto loans, mortgages, and even leases often have co-signers. With a co-signer, credit is approved on your behalf. Successful payments increase your creditworthiness and credit score.

You can also become an authorized user with someone else's credit card. See if a family member or friend will add you to your credit card account. Payments appear on your credit report as long as your credit card issuer reports them to the credit bureaus.


Be smart when applying for new credit.

Each new credit application generates a thorough investigation of your credit report. Too many difficult questions in a short period of time can affect your credit score, as lenders find this behavior risky.

If new credit cards are often refused, your requirements may be too high for your current credit profile. Pay attention to your credit and be aware of the issuer's underwriting standards so you can apply for smarter credit.

Try a secure credit card or become an authorized user first. You can also subscribe to a rental reporting service that reports rental payments to credit reporting agencies. Having a more positive credit history will increase your chances of being approved for credit cards with more stringent requirements over time.


Continue with your new credit card payments.

Payment history is the most important factor that affects your credit score. It is essential, especially after bankruptcy, to make timely payments once you have a new credit.


Report your payments to credit bureaus.

Lenders and creditors are not required to report your activities to the bureaus, so ask them if they do. Ideally, any lender or creditor you use after bankruptcy should report to all three so that your positive business is captured and your credit score is raised.

You can also report your non-credit payments (such as rent, utilities, cell phone) to the bureaus. Not all credit score models include these payments when calculating your score, but it certainly won't hurt to have these positive payments as part of your credit history.


Keep your business down.

When your credit card balance is low, you are using a lower percentage of your total available credit. Experts recommend a credit utilization rate of less than 30%. A low credit utilization rate is an indicator for creditors that you will repay what you have borrowed.


Check your credit report to make sure your bankruptcy has been recorded accurately.

Bankruptcy can seriously damage your credit report, but there can be mistakes that make it worse. For example, debts that show up as assets or past due rather than written off can damage your credit report.

Be sure to review your credit reports after bankruptcy. If you see an error, work on it as soon as possible.

 

Your credit report after bankruptcy

In the years following a bankruptcy, regularly check your credit reports. Beware of mistakes and then file a dispute. Get help from a credit repair service that can spot inaccuracies, dispute errors and guide you to the best possible credit score.


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