How-To Guide on Rebuilding Your Credit After Bankruptcy

Written By Marie Abendroth
Last updated March 1, 2021

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Credit
March 1, 2021

Simple. Thrifty. Living.

Bankruptcy simultaneously wipes your financial slate clean and decimates your credit score—and its negative impact sticks around for 7 to 10 years. But that doesn’t mean you have to throw your hands in the air and give up until the bankruptcy drops off your credit report.

In fact, as soon as the crushing weight of debt lifts off your shoulders, it’s time to roll up your sleeves and get to work on rebuilding credit after bankruptcy. That way, you’ll create the foundation needed to help your score skyrocket, putting you in a great place in the future. If that sounds like just what you need, follow these steps to get ahead of the game.

Although it’s not the only reason for bankruptcy, overspending is the quickest way to end up back in serious debt. Thankfully, you can ensure you always spend within your means by creating and following a budget.

To get started, use a spreadsheet or money management app to identify your expenses and stay on track of paying each one. As you do that, make sure to allocate funds for your wants as well as your needs to keep the urge to splurge to a minimum.

With a budget on your side, all the rest of the steps will be much easier to tackle as you work on rebuilding credit after bankruptcy. Just remember to review it at least once a month to verify you have every expense accounted for and paid on time.

Your credit score measures your overall creditworthiness and a big part of that is paying all your obligations on time. If any of your outstanding payments falls 30 days late, your score could drop up to 100 points, leaving you back at square one.

To keep that from happening, use your budget to your advantage in tracking and making all payments on time. Check that the payment due date in your budget matches what is in the company’s system to avoid mistakes along the way.

Some companies use rolling 30-day due dates, for example, that change the payment period slightly over time. Furthermore, the off-tempo payment schedule can result in the need to make 13 payments in a 12-month period. So, stay on top of it to avoid getting caught off-guard.

After bankruptcy, it’s often difficult to get approved for a regular credit card. But you can get a secured card that lets you build credit without the big risk. With this type of card, you add a certain amount of money to it each month. Then, you can spend those funds and pay it back in full each month, showing your proper use of credit.

Keep in mind that secured cards do tend to come with annual fees and high interest rates. So, you should only use it for long enough to increase your credit score until you can qualify for a regular card.

As you work on this step, open a bank account with a credit union and keep it in good standing. Then, once your score hits around 620, apply for a credit card with your bank for the best chances at getting approved.

Getting a loan with a co-signer, and then paying it back fast, can help boost your score quicker than you might believe. Unfortunately, it’s also quite difficult to find someone with good credit to co-sign on a loan.

Instead, you could ask a trusted person in your life to add you as an authorized user on their credit card. The risk here is on you instead since the resulting impact on your credit score depends on their proper use of their cards.

As long as they maintain a low balance each month and pay off their cards on time, you should see your score steadily increase. When combined with your own use of a secured card, the uptick can get your score up to a workable range, so you can qualify for a regular credit card of your own.

You can never predict what life might throw your way, which is why it’s important to put as much money as you can into a savings account. By doing so, you can handle emergency expenses without having to put it on your credit cards or getting a risky loan.

If your income is lower than you would like, start with just $25 per check to begin building a savings fund that can save you big time in the future. By the end of the year, twice monthly contributions will have your account at $600, giving you a buffer for surprise financial woes.

As your income increases, bump up the amount you sock away into savings to get at least $1,000 put away for emergencies. Then, you can direct your funds to retirement accounts, investments, and the like to increase your net worth.

To keep mistakes from derailing all your efforts in rebuilding credit after bankruptcy, keep a close eye on your credit report. You’ll want to pull your report several times a year and compare the data to your records. You can do so for free through Experian, TransUnion, and Equifax once per year each, so space out your requests for near quarterly reports.

If you notice anything awry, immediately dispute the errors to keep the info from tanking your credit score. To start that process, you’ll need to send them a dispute letter detailing the inaccuracies using certified mail.

Keep a copy of the letter and your mail receipt in a safe place while you wait the 30 days for the credit reporting agency to complete the investigation and correct the error. Once they send you a copy of their report, put it with the other documents, just in case the error reappears later on.

Even when you’re doing everything right, credit repair can feel like it takes an excruciatingly long time. You can ease the pain of the wait by just staying on track and letting it simmer. Resist the urge to check your score daily and focus on making money and submitting your payments on time.

If you feel like you cannot go it alone, no worries. Just reach out to a credit repair company for support. They will assess your current credit situation, help you create a plan to repair the damage, and provide support as you move through each step.

After you put in all this hard work, you can keep going to potentially avoid having to file bankruptcy ever again. Your efforts will go a long way in keeping your financials healthy and robust, helping you secure a brighter future for yourself and your family.

About the Author

Marie Abendroth

Marie is a skilled content strategist and SEO copywriter with a focus on helping people improve their personal finances and overcome their barriers to success. In her articles, she aims to provide up-to-date info that can help everyone better understand how to invest in a better future.  

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