How to Repair Your Credit After Bankruptcy
That filing bankruptcy will ruin your credit forever is a widespread myth. Bankruptcy does do some serious damage to your credit score, but it doesn't have to be forever. You can still achieve good credit again if you take steps in everything from fixing errors in your credit report to keeping a stable job history.
Make Sure Your Credit Report Accurately Reflects Your Bankruptcy
You might think you don’t want your bankruptcy to appear on your credit report, but your report would show outstanding, probably delinquent balances instead if the bankruptcy wasn't there. Your credit report should show a $0 balance for any accounts that have been discharged through bankruptcy.
It's not unheard of for creditors to continue to report negative account information even after you've received your bankruptcy discharge. It might cost you a few dollars to check your credit report every few months, but it's money well spent—and you're entitled to one free credit report each year.
Raise a flag with the credit reporting agency if any of your discharged debts are being reported as alive and well and delinquent. In fact, some experts recommend sending each agency a copy of your discharge immediately to put them on notice that they should not report any further information on those accounts. You can send a dispute to the credit bureaus to have your credit report updated if one of them errs.
Keep Paying Nonbankruptcy Accounts on Time
Not all your accounts will be included in your bankruptcy. For example, student loans typically can’t be discharged. Positive payments help improve your credit score over time, so make sure you keep paying any loans that weren’t included in your bankruptcy filing.
You should even keep up with payments on accounts that aren’t on your credit report because they might be reported later if you fall behind on the payments.
Avoid Credit Repair Companies
You’ll see plenty of advertisements from credit repair companies that say they can remove a bankruptcy from your credit report, and you might even receive offers for help in the mail. But they can't legally do anything for you if the bankruptcy report is accurate. It will just come back as accurate if you try to dispute a bankruptcy listing.
Do not believe anyone who says they can take a bankruptcy off your credit report. That is not going to legally happen, at least not until 10 years have passed and it falls off your report on its own.
There's really nothing these companies can do for you that you can't do yourself, but they'll take your money anyway.
Get New Credit
Securing new credit is one of the biggest hurdles to get over in postbankruptcy credit repair, but it’s also one of the most critical steps to rebuilding your credit.
Some credit cards approve applicants who have a history of bankruptcy because they know that, by law, you can't declare bankruptcy again for another seven years. And retail and gas cards tend to be easier to qualify for than other unsecured cards, even after bankruptcy. But you'll probably pay for that with high interest rates.
Still, these cards can get your foot back in the door and could be a helpful step if you only make very small purchases on the card or—ideally—you pay the balance off every month to keep the interest from getting out of control.
Consider a secured credit card if you’re not having luck with any of the traditional credit cards. Secured credit cards require that you put down a security deposit, but these card issuers will often convert your card to an unsecured one after you make timely payments for at least a year.
Consider a Co-Signer
Having a family member or friend co-sign with you can go a long way toward re-establishing your credit sooner rather than later. You must then maintain a spotless payment record going forward—and not just for your own benefit. If you default or if you're late with just a single payment, this information will ding your co-signer's credit report as well as your own. Not good.
Avoid Job Hopping
Switching jobs frequently won't affect your credit score, but lenders will be looking at more than just your credit score and report when you apply for new credit after a bankruptcy. If you have a solid job and you've been with your employer for a while, this stability can potentially sway a decision in your favor when a lender is on the fence about approving you.
If you've held four jobs in the last year, that might indicate that you have a problem with discipline or responsibility, so you might not be someone the type of borrower on whom a lender wants to take a chance.
Make Your New Credit Card Payments on Time
The two things that most help your credit score are time and positive credit card payments. When you get a new credit card—whether it’s secured or unsecured—be sure to make your payments on time every month. Even better, pay your balance in full if possible to keep yourself from getting back in trouble with debt again.
Every time you're late with a payment—every single time—it pops up on your credit report and stays there for seven years. Add that to the bankruptcy filing that already appears there, and your case for creditworthiness becomes much harder to prove to lenders.
Keep Your Balances Low
Consumers with the best credit scores keep their credit card balances low. This isn’t about how much of your balance you pay off every month, but rather about how much you charge in the first place.
The credit card issuer could report your credit card balance at any time during the month, so you'll want to be sure that you only ever charge up to 30 percent of your credit limit. Less than 10 percent is even better.
Apply for New Credit Sparingly
Part of your credit score is based on how many new credit applications you make. Avoid putting in several new credit card or loan applications at once, particularly if you’re getting turned down. The new applications will ultimately make lenders wary of approving you because they think you might be desperate for credit.