Although bankruptcy can and will deal a devastating blow to your credit profile, its effects don’t have to be long-lasting. While the bankruptcy itself can legally remain on your report for up to ten years, you can begin rebuilding your credit rating the day that your case closes. Here are some strategies that will help you to quickly get back on track.
The first thing that you’ll want to do is to use your bankruptcy as a wake-up call to find out what’s wrong in your financial life. Identify the problem areas; do some soul-searching. If your problem was overspending, create and maintain a budget. If a job loss or other setback wiped you out, get started on establishing an emergency fund.
While you’re doing this, get a copy of your credit report and review it carefully. Quite often a credit file may continue to show several accounts being open and overdue when, in fact, they were closed and the obligations discharged as part of the bankruptcy. If there are other mistakes on your report, correct those as well. Your credit score is based on information in your file, and errors can seriously affect your rating.
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In order to improve your credit, you’ll have to get and use -- you guessed it -- some credit. You’ll need two types in order to raise your score quickly:
Revolving credit - A great solution for rebuilding credit is with a secured credit card, which will give you a credit limit that's equal to an amount that you deposit at the issuing bank, usually around $300. But here’s the key: don’t use much of the available credit. Maxing out your credit cards lowers your credit score. Don’t charge more than about 30% of your credit limit, and pay the balance off in full each month. Light, regular use of a credit card helps build your credit; it’s also easier on your overall finances.
Installment credit - This includes any type of loan which has fixed regular payments for a specified period of time, such as car loans, mortgages, or student loans. Interestingly enough, if you still have student loans (which typically aren’t discharged in bankruptcies) you can use them to help rebuild your credit. Pay them regularly, and pay more than the minimum that’s due. Next to making on-time payments, paying down your existing debt is the best way to improve your credit score.
You may be able to qualify for a high-rate mortgage in as little as six months after a bankruptcy; however, you'll probably be better off waiting until you can qualify for an FHA loan, which is typically only about two years after your case has closed, as long as you've maintained good credit habits since then. Auto loans can also help to rebuild your credit. Just remember that your interest rate will likely be quite high; after making timely payments for a year or so, you’ll usually be able to refinance into a lower rate.
Adopt responsible credit habits by using the strategies outlined above. Make sure that all your payments are made on time. Before you know it your credit score will be back up where you want it to be. It can be done, and you can do it.
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+ Getting a new mortgage after claiming bankruptcy
+ Obtain a free copy of your credit report
+ Information about filing personal bankruptcy online
+ Getting approved for credit cards after bankruptcy
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