How to Rebuild Your Credit After Bankruptcy

Most people feel that bankruptcy is the end of the line, and that their financial life is doomed to mediocrity or worse from there on. However, this is not the case. Bankruptcy is only a bump in the road – okay, maybe more like a car accident blocking both lanes of traffic – but it is surmountable, and by taking steps to show credit companies that you are responsible you can turn your credit around in just a few years. It is a fact; credit repair is possible, and you can return to financial success after filing for bankruptcy. Here are some tips on how to do it:

10 Tips for Repairing Your Credit

1.    The first step to rebuilding your credit is to open a checking or savings account and to manage it responsibly. Showing credit companies and banks that you are trustworthy is absolutely crucial.
2.    You should begin depositing around 1/4th of your paycheck into your savings account, and hopefully, after several months the bank will agree to grant you a secured credit card. With secured credit cards you must first put down a security deposit which will be deducted if you default on payments. The security deposit also sets your limit on the credit card. A debit card does not reflect on your credit report, activity on your secured credit card will. Therefore making responsible payments on your secured credit card is absolutely crucial to rebuilding your credit.
3.    Obviously pay all your bills on time. Consistently paying rent and utility bills on time is a great way to build trust with credit companies.
4.    Applying for store or gas cards are simple and low-risk ways to show the credit companies that you can manage money and make timely payments.
5.    Make sure all your open and delinquent accounts are closed. This may be a chore as the people who you owe money to can “sell” your debt to debt collection companies. So you have to use your credit reports to track down your delinquent accounts and make sure the owners of your debt receive your bankruptcy information and close the account. Also make sure your credit report is correct.
6.    To build up good credit you will need a variety of good credit lines. If it makes sense for you, try purchasing a used car. You may need a cosigner, but car loans are relatively easy to get – especially through dealerships who advertise that they negotiate with people with bad credit.
7.    Of course, don’t live beyond your means. Don’t go opening four of five cards, take out a loan, and find out you can’t afford to make payments on all of them. This will only make your credit problems worse. It is crucial that you live within your means and make regular, on time payments on all your accounts in order to build up good credit. You probably will have to be frugal for a while in order to rebuild your credit.
8.    Don’t spend on frivolous luxury items that you don’t need. Any money that you can save is a plus. Make sure that you can make all your monthly payments and then put the rest of the money in the bank.
9.    After several months of being in good standing with your secured credit cards try applying for an unsecured credit card. Again, it is absolutely crucial that you live within your means and make your payments on time. Just because it’s an unsecured card doesn’t mean you can go buy up the store. It’s important to show the credit companies that you can live responsibly within your budget.
10.    Do not resort to payday loans. Cash advance loans can be disastrous to your credit, especially if you get caught in a cycle of extending the loan.

Don’t get me wrong, turning your bad credit around won’t be easy, and it will take patience and dedication. But by taking these steps, and as I’ve said multiple times, paying your bills on time, you can turn your credit around. Studies have shown that after 18-24 months of consistent and good credit history you can qualify for a loan again, so start making strides now to show the credit companies that you are punctual and reliable.