How To Rebuild Your Credit After Bankruptcy –

How To Rebuild Your Credit After Bankruptcy –

How to rebuild your credit after bankruptcy

If you are currently going through or have recently gone through a bankruptcy, there are a few things to keep in mind when rebuilding your credit.

Here are a few rules of thumb to build credit after bankruptcy:

Beyond these, there are other strategies that can help.

Keep up with payments on existing loans and credit cards

Instead of trying to get funds right away, focus on making timely payments on existing loans or credit cards every month to help reestablish your credit. Payment history makes up 35 percent of your FICO score, so making on-time payments is one of the best ways to build your credit and show that you can be financially responsible.

Why this matters: Taking the proper steps to rebuild your credit after filing bankruptcy will not only improve your financial behaviors but show future lenders your creditworthiness.

How to get started: Work on making timely payments by signing up for autopay. At the least make the minimum payments. If possible, make extra payments.

To help make sure you’re paying on time, set up reminders. Some credit cards have the option of having a reminder sent to your phone or email prior to the due date. And monitor your spending. You can set alerts if you use your credit card to pay for something over email, phone, or online or if you’ve spent over X amount.

Apply for a new line of credit

Adding a new line of credit can demonstrate that you can responsibly make on-time payments. In turn, it’ll help your credit score. However, when you apply for new lines of credit, the lender will do a hard pull on your credit. “Every time you apply for new credit, your prospective lender accesses your credit report,” says April Parks-Lewis, director of education and corporate communications at Consolidated Credit. “Those inquiries can drag down your credit score.”

As too many hard inquiries will ding your credit score, try to apply for credit lines you know you can qualify for. You can also apply to get prequalified, which results in a soft pull of your credit. When you’re trying to build your credit after bankruptcy, here are some types of credit for you to consider:

  • Credit builder loans. With a credit builder loan, you deposit money into an account. The lender keeps that money while you make payments on the principal and interest on the loan. These payments are reported to the consumer credit bureaus. After you pay back the loan, the money is released to you. Credit builder loans are typically offered by regional banks and community banks, and the loan amounts are small.
  • Secured credit cards. A secured credit card requires you to dole out a security deposit before it’s issued to you. This deposit is usually the same amount as your credit limit, and the amount starts at $200 and can go up to $2,500. Should you miss a payment or are late, the credit card issuer will use your deposit to cover your bill. If you showcase financial responsibility and make on-time payments, you’ll get your money back over time. Because secured credit cards are considered low risk, it’s a good option to rebuild credit.
  • Being an authorized user on a credit card. When you’re added as an authorized user on someone else’s credit card, you have permission to use it. As you’re not the primary account holder, you’re not responsible for making payments on the card. The advantage of being an authorized user is the primary account holder’s financial behaviors, such as making payments on the card, could potentially help build your credit. However, if they miss or are late on payments, it could harm your credit file.

Why this matters: A new line of credit can help you build your creditworthiness.

How to get started: Choose one of the options from above that fits your situation best and work on keeping that line of credit in good condition.

Apply for a loan with a co-signer

Should you apply for a loan on your own, lenders might deem you risky because of your credit past. Getting a co-signer on a loan can help boost your chances of getting approved. That’s because lenders will take into account the co-signers credit score, which would up your creditworthiness. When someone cosigns a loan, they don’t have access to the money. However, they are on the hook for repayment should you be unable to keep up with your payments.

Why this matters: Rebuilding credit after you’ve filed bankruptcy can help you re-establish your credit profile. By understanding the different options, you’ll learn how these different forms of credit might help you boost your credit after it’s been on shaky ground.

How to get started: Explore the different options for establishing a new line of credit and see which ones you think might be beneficial for you. You’ll want to take into consideration whether a hard pull or soft pull on your credit is required, what you would use that line of credit for,  setting limits on a line of credit, and having a repayment plan in tact so you don’t fall into a deeper debt hole.

Be cautious about job-hopping

As lenders often factor in your job history when approving a loan, holding down a stable job and having consistent income can boost your chances of getting a loan. That’s because stable employment can make lenders look more favorably on your ability to pay your loans.

While switching jobs might be okay, having gaps in income might make you seem more like a risk to lenders.

Why this matters: When you’re trying to land financing after bankruptcy, because your credit is shaky, you’ll want to make sure as many financial ducks are in a row as possible. Having consistent income and not job-hopping too much can help you look more favorable to lenders.

How to get started: When researching lenders, see if employment history plays a part in the decision-making process. If you’re self-employed or side hustle, be prepared to provide additional income verification. The more documentation you can provide that shows your income is consistent, and better.

Keep a close eye on your credit reports and credit scores

Every year, you are entitled to one free copy of your credit report from each of the three major credit-reporting institutions: Equifax, Experian and TransUnion. Take advantage of this and regularly examine your reports for errors or missing information. If you find any inaccuracies, such as a delinquent account that doesn’t belong to you, you can report it to the appropriate credit-reporting agency. When the negative mark is removed, your credit score will likely rise.

Why this matters: Inaccurate information on your credit reports can cause a low credit score.

How to get started: Use to access each of your credit reports for free. Through April 2021, you can access each of your reports once a week. Many credit card companies also provide you regular updates of your credit score to monitor.

Think twice about working with credit repair agencies

Instead of paying a credit repair agency, consider using that money to increase your emergency fund and savings. Focus your efforts on the habits and circumstances that led to your bankruptcy and how you can change them.

“There are many unscrupulous agencies out there that will claim they can remove a bankruptcy or fix a credit report,” says Samah Haggag, a senior marketing manager for Experian. “There is nothing a credit repair organization can do that you cannot do yourself.”

Why this matters: Credit repair agencies take the heavy lifting out of credit-building, but they charge fees. If you’re willing to put in the work of checking your credit reports and disputing errors, you can save that money and use it to continue paying down existing debt.

How to get started: Take a look at your budget and request copies of your credit report yourself before looking into credit repair agencies.

Consider a Co-Signer

Having a family member or friend co-sign with you can help you qualify for better cards or loans and re-establish your credit quicker. If you do have a willing co-signer, you must maintain a spotless payment record going forward—and not just for your own benefit. If you default or if you're late with even a single payment, this information will ding your co-signer's credit report as well as your own. 

Many credit card companies won't accept co-signers, but auto loans and some others commonly will. Another option is to have someone add you as an authorized user on their account.


Beware Credit Card Fees; Use New Credit Wisely

After bankruptcy, some companies attempt to charge stunningly high fees for secured cards, sometimes as high as $200 for a $500 card. Talk about adding insult to injury.

However, you have choices. Shop for a low- or zero-fee card, study the fine print, and make the choice best for you. Be on the lookout for interest rates on balances carried over.

Also, make certain your new card company reports to all three credit monitoring agencies. Some don’t, and you’ll want the world to see how exceptionally well post-bankruptcy you is performing.

Once you’ve secured a secured credit card, you will demonstrate that excellent performance by using the card prudently, never going above 30% of the balance limit, and paying off the balance each month.

When you are comfortable paying off the secured credit card, you might be ready to try for an unsecured card. Once again, anticipate rejection, high fees, or punishing interest rates.

However, given sufficient time (typically one year) and diligence using your secured card — balances kept low and paid off each month — you should be able to obtain a regular, unsecured credit card — one even with rewards or cash back.

But the rules do not change: When you do get an unsecured credit card, keep the balances low and paid off — on time — monthly.

3. Apply for a secured credit card

No active loan or credit card? No problem, says Adam Selita, CEO of The Debt Relief Company.

“The best and most beneficial way to build your credit after bankruptcy would be to apply for a secured credit card,” says Selita, who explains that you can get one regardless of the bankruptcy notation or the extremely low credit scores that go with it.

Secured credit cards are collateralized by a cash deposit that usually matches the credit line. So, if you put down $500, that same amount will be your limit. Many creditors will release the money back to you after you make a certain number of on-time payments, turning it into an unsecured card. Some even offer rewards program so you can earn as you charge.

For example, the Discover it® Secured Credit Card card offers 2% cash back at gas stations and restaurants (up to $1,000 in purchases per quarter) and 1% cash back on other purchases. Also, starting at seven months, your account is automatically reviewed and if you’ve used the card responsibly, you may be able to transition to an unsecured line of credit and have your deposit returned.

See related: Best credit cards after bankruptcy

5. Consider a Credit-builder Loan

Credit builder loans are another way to build your credit without having to qualify for a traditional loan. With a credit-builder loan, the lender holds a certain amount of money in a secured savings account or certificate of deposit in the borrower’s name. The borrower then makes monthly payments—including interest—until the loan is repaid.

Depending on your bank, you may also have the option of a secured loan, where you borrow against money already in your savings account. As with traditional loans, the financial institution reports credit-builder loan payment activity to the major credit bureaus, which can improve your score over time.

1. Make sure you’re zeroed out

Ashley Morgan, a bankruptcy and debt attorney from Herndon, Virginia, says the first thing to do is make sure all of the accounts you included in the Chapter 7 bankruptcy show as “zero balance due” on your credit reports.

“If there’s still an amount left on these accounts, your scores will be even lower than they should be,” says Morgan.

Pull copies of your credit reports from Experian, TransUnion and Equifax from If you spot an incorrect balance, dispute it with one of the credit reporting bureaus (it will alert the others) and include documents from the bankruptcy that indicate the discharge. When your credit reports are updated, your scores should adjust upward.

2. Monitor Your Credit Score

Bankruptcy will likely cause an initial drop in your score of 100 to 200 points or more, though this varies and the effects improve over time. Checking your credit score from month to month is a critical step in improving your score after bankruptcy. To do so, create an account with a free online service; several credit card companies also offer customers free score updates.

Once your accounts are discharged during the bankruptcy process, check your score to confirm that these changes were accurately reported.

To avoid further decreases, monitor your credit score for any red flags that may signal identity theft or other issues. This may include fraudulent loan applications made in your name, inaccurate account statuses or civil suits or judgments you weren’t involved in. While score increases may come slowly, checking your credit score regularly is also an effective way to stay motivated as you take steps to improve your credit habits.

Choose Credit Repair Wisely

You’ll see plenty of advertisements from credit repair companies that say they can remove a bankruptcy from your credit report. Be wary of any company that guarantees bankruptcy removal. If your bankruptcy report is accurate, there is nothing these companies can legally do for you that you can’t do for yourself.

Monitoring Your Credit

Of course, rebuilding credit after bankruptcy requires keeping a close eye on your credit report in addition to keeping an eye on your personal finances. It’s the only way to track progress and ensure your credit repair efforts are making a difference. 

The good news is that each one of the three major credit bureaus (TransUnion, Experian, and Equifax) has to provide you with a free credit report once a year. So make a plan to go to to get your free credit report once every 12 months. You don’t have to do all three at the same time, you can stagger them throughout the year. 

Not only will this help you track your own hard work to re-establish a good credit rating, it can help you catch errors, like a bank incorrectly reporting your payment history, for example. You can (and should) dispute any and all errors in your credit history. 

Getting a Credit Card After Bankruptcy

One of the quickest and best ways to build credit after bankruptcy is with a credit card. It may seem counterintuitive since you don’t want to spiral into more debt. However, positive payment history is the most important component of your credit score.

You will probably have a lot of “accounts in bankruptcy” on your credit report. Therefore, you’ll likely need to rebuild this portion of your credit report by adding some positive credit accounts.

You don’t have to charge all of your expenses on your credit card. Instead, start by selecting one bill to pay every month with your credit card. Then, immediately pay off the balance. As you start to accrue timely payments, your credit scores will eventually start to increase.

Now you might be wondering how to get a credit card if you have a bankruptcy on your credit report.

4. Get a Secured Credit Card

Secured credit cards don’t require good credit, so you can get one fresh out of bankruptcy. However, with a secured credit card, you’re required to put down a refundable security deposit that equals your line of credit.

See also: Secured vs. Unsecured Credit Cards: What’s the Difference?

When you charge an item to your secured card, you still have to pay for it out of your own wallet. The deposit merely serves as protection in case you stop making credit card payments.

Like any other credit card, you’ll be charged interest if you don’t pay off your balance on time. However, this can be a great tool to start repairing your credit after bankruptcy, especially if you don’t qualify for an unsecured card or the interest rates are too high.

Before choosing a secured credit card, ensure that the credit card issuer reports monthly payments to the three major credit bureaus. Also, limit the number of applications you submit since each new credit inquiry knocks off about five points from your credit score.

5. Keep Your Credit Utilization at 30% or Less

Another tip for rebuilding your credit is to keep your credit card balances at 30% or less of your available credit limit. Getting a credit card or applying for new loans should strictly be for rebuilding credit at this point. Don’t use credit cards for making large purchases or for making loans to yourself.

6. Become an Authorized User

Being added as an authorized user on someone else’s credit card account can almost instantly boost your credit score. If the primary account holder has excellent credit, the authorized user will also show excellent credit on their credit report.

The credit card shows up on your credit report from the original date family member opened it, not when they added you to the account. So, being added as an authorized user can potentially add years of positive credit history to your credit report.

2. Consider a secured or retail credit card

Bankruptcy can hurt your purchasing power, but it shouldn’t destroy it entirely. You may still qualify for certain types of cards.

Secured cards

Secured credit cards require an upfront deposit, which helps protect the lender in case you can’t make payments. In exchange, you’ll get a credit limit that’s typically equal to the deposit.

But before you apply, read the fine print. Some cards won’t approve your application until your bankruptcy is resolved.

Retail cards

Retail credit cards may also come in handy post-bankruptcy, as they can have looser credit requirements than other unsecured cards. But watch out: Many have high interest rates and penalty fees.

With either type of card, the basic credit-building goals apply: Don’t take out more credit than you need, make on-time payments and keep your balances low. Setting up automatic monthly payments and balance alerts may help you meet those goals.

5 of the best credit cards after bankruptcy

Life After Bankruptcy

After you file for bankruptcy, there’s no magic trick that makes your credit rebound overnight. Building great credit takes time, but understanding what goes into your credit reports and scores will help you speed up the process.

Avoiding loans and credit cards might feel like your best bet after a bankruptcy, but if you don’t have any open accounts, it can be nearly impossible to add new, positive information to your credit file.

Instead of swearing off credit forever, focus on using credit cards and loans sparingly, making all of your payments on time, and regularly monitoring your credit information. Together these steps can you help you rebuild strong credit within a few years of filing for bankruptcy.


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