8 Easy Ways to Rebuild Credit After Bankruptcy

Though your bankruptcy will remain on the report for some time, you must get in the habit of checking it regularly. Credit reports can still contain errors unrelated to your bankruptcy. Typical errors found on a credit report include:

• Incorrect accounts
• Account reporting mistakes such as inaccurate balances, missed payment dates, and inaccurate dates the account was opened or closed
• Inaccurate personal information such as the wrong name, wrong birthdate, or an incorrect address
• Mistakenly reporting you as deceased
• Mistakenly reporting you as being on the Department of the Treasury’s Office of Foreign Asset Compliance List of Specially Designated Nationals, referred to as the terrorist watch list, the OFAC List, or the OFAC/SDN List. 

If you find an error, you should dispute it with the applicable credit bureau (Experian, Equifax, or TransUnion). Each of the bureaus has an easy-to-follow process for filing credit report disputes.

2. Check your credit score often

Keeping an eye on your credit score is almost as important as monitoring your credit report each year. But, regarding your credit score, you may be able to access it as often as once a month or more. Many banks and creditors now offer free access to your credit score as one of their perks. So, get in the habit of checking periodically to see how your score is trending.

Filing for bankruptcy has a pretty big impact on your credit, so by checking your credit score, you can watch it slowly rebuild as you develop better financial habits. Check out this table which shows how much bankruptcy can impact you, based on the score band you were in when filing.

Further, take a look at pros and cons to checking your credit score regularly.

3. Practice responsible credit habits

Your credit score will inevitably improve as more time passes since your bankruptcy. However, don’t assume that letting time pass is enough. Healthy financial habits are necessary to rebuild your credit after bankruptcy. Here are some steps to take:

• Make your payments on time every month
• Reduce your credit card use should you still have a credit card (or even a secured credit card)
• Keep your credit card balances low - utilization impacts 30% of your credit score
• Start putting money into an emergency savings fund so that you have a “cushion” should you run into future financial challenges

4. Take credit for your non-credit payments

Even if you have filed for bankruptcy, you may be paying non-credit-related expenses monthly. For example, you may pay for your mobile device, various streaming services, water or electricity bills, etc. Programs like Experian Boost let you get credit for paying monthly utility, cell phone, and streaming service bills on time. You can even get credit for streaming payments on Netflix, HBO, Hulu, Disney+, and Starz. 

5. Get a secured credit card

Getting a secured credit card is a great way for those who have filed for bankruptcy to build better financial habits, such as managing credit card utilization, paying bills on time, and improving your credit. Secured cards work very similarly to traditional credit cards, except you pay a cash deposit upfront to guarantee your credit line. The more you make on-time payments, your credit score will improve. And over time, you may again be eligible for a traditional credit card. This process takes about six to 18 months.

6. Try a credit-builder loan

Credit-builder loans stand apart from traditional loans because they specifically help you build your credit. These loans are for a small amount, usually under $5,000, with a short repayment period of six to 24 months. The money you borrow is deposited in an account while you make payments. You get the money back after successfully making all of the payments with interest. In essence, with a credit-builder loan, you are borrowing from yourself for the purpose of building credit.

Paying off a credit builder loan can positively impact your credit score by about 35%, provided you make your payments on time.

7. Ask a trusted family member to add you as an authorized signer on their credit card

After you have filed for bankruptcy; it can be hard to get a new traditional credit card. Yet, successful management of credit cards is a great way to improve your credit score. With this strategy, you can leverage their habits while slowly improving your credit. However, before you do this, ensure you have the means to fulfill your end of the financial arrangement and that the primary user is financially responsible.

8. Get a co-signer for a personal loan for poor credit

After you have filed for bankruptcy, many lenders will view you as a credit risk and will be hesitant to approve your loan. However, you may qualify for a personal loan for poor credit, especially if you ask a co-signer to sign the loan. A co-signer helps you improve your credit score. Remember, too, that payment history accounts for 35% of your credit score. Staying current on your personal loan payments could help boost your score, provided you can manage your other debts responsibly. 

How Long Does it Take to Rebuild Credit After Bankruptcy

The length of time it takes to rebuild your credit after bankruptcy depends on a variety of factors, including the type of bankruptcy you filed, the amount of debt you had, and how quickly you start rebuilding your credit. The most common types of bankruptcy are:

• Chapter 7 - This type of bankruptcy gets rid of your unsecured debt such as credit cards, personal loans, and medical bills, and may stay on credit reports for ten years from the filing date
• Chapter 9 - This bankruptcy enables financially distressed municipalities to reorganize their debts and seek protection from their creditors. This type of bankruptcy does not impact a personal credit score.
• Chapter 11 - This form of bankruptcy involves reorganizing a debtor's business affairs, debts, and assets. It is also referred to as a "reorganization" bankruptcy. A Chapter 11 bankruptcy allows a company to stay in business and restructure its obligations and does not impact a personal credit score.
• Chapter 12 - This form of bankruptcy specifically applies to farms and fisheries and does not impact a personal credit score. 
• Chapter 13 - This type of bankruptcy allows you to catch up on your secured debts (home, car, etc.) and remains on your credit report for about seven years from the filing date. 

As you can see, only chapter 7 and chapter 13 bankruptcy will impact a personal credit score. And it can take several months to several years to rebuild your credit after bankruptcy, especially while the bankruptcy is still listed on your credit report.

How Long Does Bankruptcy Stay on Your Credit Report?

A Chapter 7 bankruptcy removes your unsecured debt, such as credit cards, personal loans, and medical bills, and may stay on credit reports for ten years from the filing date. A Chapter 13 bankruptcy, on the other hand, allows you to catch up on your secured debts (home, car, etc.) and remains on your credit report for about seven years from the filing date. 

The length of time that various activities stay on your credit report varies. 

Conversely, positive behaviors can stay on your credit report for some time too.

Types of Credit You Can Get After Bankruptcy

If you have filed for bankruptcy, getting credit may be harder for quite awhile to come. This is because lenders and creditors will view you as less creditworthy. However, this doesn’t mean you can’t get credit. You can get a secured credit card or credit builder loan to help you build credit, but you can also pursue certain loan options for poor credit.

Auto loans are available for those with poor credit

There are auto loans available for borrowers who have poor credit scores. You may need to pay a larger down payment and will likely be subject to a higher interest rate. For example, an auto loan for a borrower with a credit score between 506 and 600 may be an interest rate of approximately 16.78%.

Getting a mortgage after bankruptcy may be more challenging

However, you may run into some further issues if you wish to buy a house. To get a conventional mortgage that meets Fannie Mae's and Freddie Mac's requirements, you’ll likely need to wait four years from the date of your bankruptcy discharge or dismissal before you can get a mortgage if your bankruptcy was due to financial mismanagement.

You may have better luck with an FHA-insured mortgage. The U.S. Department of Housing and Urban Development (HUD) requires borrowers to wait two years after the discharge of their chapter 7 bankruptcy before qualifying for a Federal Housing Administration (FHA) mortgage. You may be able to shorten the waiting period to one year if you can document extenuating circumstances.

A small business loan could still be in the cards after bankruptcy 

Finally, you may wonder if you can get a small business loan after filing for bankruptcy. To seek a small business loan before bankruptcy rolls off your credit report, follow these steps.

• Wait until your bankruptcy is discharged
• Keep your debt to a minimum
• Do your research - you may have to look at online lenders instead of traditional lenders like banks or credit unions
• Create a business plan that you can submit with your loan application materials
• Write a bankruptcy statement that outlines why you filed for bankruptcy
• Seek a co-signer - this should be someone you trust who has the means to repay your business loan if you are unable to

Rebuilding Your Finances after Bankruptcy: Tips for Moving Forward

After you file for bankruptcy, you must start taking the steps to improve your credit. Some of the best ways to do this are:

• Prepare a financial budget - apply the 50/30/20 rule and divide your income into three categories, spending 50% on needs, 30% on wants and 20% on savings
• Set aside money into an emergency fund so that you have a cushion should something go wrong
• Live within your means
• Work with a financial advisor or credit counselor - credit counseling can assist you with getting your finances in order. They can advise you on your debts, help you develop a budget, and provide money management workshops to set you on a path toward financial success. 
• Use financial apps that can help with budgeting - free apps like Mint, GoodBudget, and Personal Capital are free and are a great place to get started
• Stay positive and be patient - with sound financial decisions, your credit score will start to improve

The Importance of Patience and Persistence After Bankruptcy

One thing that we have said time and again is that it takes patience and persistence to rebuild your credit after bankruptcy. But this doesn’t mean it is impossible. During that time of rebuilding, keep your head up and stay focused on the following:

• Keep steady employment - even though your employment status and income aren’t part of your credit score calculation, it can help your credit report and ability to get credit in the future. Creditors like to see job stability and will also look at your debt-to-income ratio when considering you for a loan or credit card.
• Pay your bills on time - A good payment history represents 35% of your credit score and helps demonstrate your creditworthiness.
• Rebuild your credit - Get added as an authorized user to someone’s credit card, or consider a credit builder loan or secured credit card. These options help get you back in the game and show future lenders that you are a responsible borrower despite your past setbacks.
• Stay positive - Stress and anxiety are common repercussions associated with bankruptcy. It can even lead to feelings of failure and depression. But for many, bankruptcy is a wise decision. Though rebuilding can take some time, bankruptcy can keep a bad situation from worsening.

Strategies for Paying Off Debts

There are three tried-and-true and popular approaches to paying off your debt. These are the snowball and avalanche methods plus the debt consolidation loan approach. Paying off your debt is a great way to help build your creditworthiness in the eyes of lenders and creditors. And it can lessen stress and anxiety as you worry about managing your bills.

• Snowball approach - The snowball approach has you focus your payoff efforts on the card with the smallest balance first. Once that card has been paid in full, stop using it but keep it open. Then, move on to the next card with the smallest balance. Rinse and repeat. This approach gives you a bit of near-term gratification and provides the psychological boost many require to stick to their debt repayment plan.
• Avalanche approach - The avalanche approach suggests you start your debt payoff efforts by focusing on the card with the highest interest rate. This method can take a bit longer but could save you more money as you pay less interest over time.
• Debt consolidation loan - Many borrowers with multiple monthly payments and an overwhelmingly high debt turn to debt consolidation loans. These loans pay off your credit cards and provide you with a lower interest rate and lower combined minimum monthly payment. The risk here is that you could start using those credit cards and get into financial trouble again. If you go this route, avoid the temptation to rack up debt on your newly paid-off cards.

How to Negotiate with Creditors

Negotiating with your creditors can effectively help with debt repayment and credit rebuilding. But, borrowers should think carefully before taking this path. Do some quick napkin math to add up your debts and see how long it would take to pay them off. Review your credit card and loan statements, too. These documents must provide you with payment information, including the following:

• New balance
• Minimum payment due
• Payment due date
• How long it would take to pay off the debt if you only pay your minimum payments
• How much you will pay (with interest) should you only pay your minimum monthly payments

Then, use this information to see what your situation looks like. If it looks too much to handle, prepare for a call with your creditors to negotiate better terms. During your call, do the following:

• Inform the credit representative with a condensed version of your financial situation
• Ask for options to help you repay your debts - they may be willing to lower your interest rate or lessen your required minimum monthly payment
• Ask questions for anything you do not understand
• Take notes and get a clear understanding of any next steps
• Get any agreements in writing (ask them to follow-up with an email or letter by mail)
• Stay friendly

Borrowers who keep a positive attitude and are polite during their calls with creditors tend to get the best results.

Final Word

As you can see, rebuilding your credit after bankruptcy is possible. However, it takes some diligence. Be prepared for your credit report to indicate your bankruptcy for seven to ten years, depending on the type of bankruptcy you filed. While you wait for it to fall off your credit report, practice good financial habits and try one of the credit-building strategies we suggested.

• How do I dispute an error on my credit report? | Consumer Financial Protection Bureau
• Federal Rules of Bankruptcy Procedure | United States Courts
• Credit and Your Consumer Rights | Consumer Advice
• What Happens to Your Credit Score After Bankruptcy? - Debt.com
• In FTC Study, Five Percent of Consumers Had Errors on Their Credit Reports That Could Result in Less Favorable Terms for Loans | Federal Trade Commission