Because a bankruptcy can remain on your credit report for up to 10 years, it is extremely important to rebuild credit after bankruptcy.
In order to rebuild credit history after a bankruptcy your main focus should be on adding positive credit accounts to your credit history. As your bankruptcy gets older you will have positive credit information getting older along with the bankruptcy.
Having positive information on your credit report along with a bankruptcy is vital to rebuild credit. It is no secret that bankruptcy will tremendously lower your credit score. But the negative effects of bankruptcy do not have to be permanent.
Rebuilding credit can begin soon after bankruptcy, you do not have to wait years to apply for new credit. The negative effects on your credit score can begin to decrease once the bankruptcy case is discharged and positive credit information is added.
The below tips will give you insight on how to rebuild credit after bankruptcy. You can qualify for credit cards and loans, with good rates, long before the bankruptcy comes off your credit report.
1. Practice new habits
Prior to rebuilding your credit, make sure you can at least make the minimum payment on all your obligations before the due date. Do not apply for new credit until the financial circumstance that caused the bankruptcy has been resolved. Only apply for new credit when you can manage debt successfully.
The most favorable scenario would be to pay your obligations in full each month. Carrying a balance is not necessary to rebuild your credit score. The widely used credit scoring formula does not make a distinction between account balances carried monthly or balances that are paid in full monthly.
2. Get new credit and use it
Bankruptcy can be devastating not only on your credit score but also mentally. Many consumers who file bankruptcy decide to live on a cash-only basis. This is a wise choice if you cannot manage credit and debt. However, if you want to rebuild credit history and improve credit scores, you must start by getting new credit and using it. But do not make the mistake of using all of your available credit. Keep your balances low and do not charge more than 30% of your available credit.
There are just a handful of credit card companies that will extend unsecured credit to consumers who have filed bankruptcy. The Credit One Bank® Platinum Card is one such card and it carries the prestige of a Visa Platinum card. It is an unsecured credit card designed for consumers with past credit problems. Credit One Bank® also has a card to rebuild credit that offers unlimited 1% cash-back on gas purchases.
3. Secured credit card
Some consumers who have filed bankruptcy run into road blocks when trying to qualify for an unsecured credit card. A secured credit card may be your only option. A secured credit card will set the credit limit equal to or slightly more than an amount you deposit at the issuing bank. The secured card must report your payment history to the major credit bureaus to have an effect on your credit scores. Your credit score will not change if the secured card does not report to the major credit bureaus.
The OpenSky® Secured Visa® Credit Card is a good choice for consumers looking to rebuild or establish their credit. It has a low annual fee of $29. You can choose your credit limit from $200 to $3,000 and they report monthly to the three major credit bureaus. Make certain you are applying for a secured credit card and not a prepaid or debit card. A prepaid or debit card is not a credit card, will not report to the major credit bureaus and will have no effect on your credit score.
4. Pay obligations before the due date
Any debt not included in bankruptcy, such as student loans, must be paid on time. Student loans are normally not dis-chargeable through bankruptcy. But this can be a positive effect on your credit score. As you pay down your student loan your credit score will improve. Making timely payments is one of the best ways to repair your credit after bankruptcy.
5. Installment Loans
In addition to revolving credit such as credit cards to rebuild your credit, installment loans such as an auto loan, personal, mortgage or student loan will also help rebuild your credit.
Personal Loan. Because an installment loan can last for many months and payments are evenly spread out over the term of the loan they can be used to help build credit for people with bad credit, poor credit or no credit history. Multiple on-time payments over time may help create a history of repayment that is reported back to credit reporting agencies and may help improve a credit score. Springleaf Financial makes loans to people with imperfect credit.
Mortgage Loan. A mortgage loan is difficult to get in this current credit crunch for good credit consumers. Therefore, the likelihood of a consumer who has recently filed bankruptcy getting a mortgage loan is low. You may have to wait a few years after the bankruptcy has been discharged, new credit has been attained and good credit habits have been successfully maintained.
Car Loan. One type of installment loan you may be able to get soon after bankruptcy is a car loan. Be prepared to pay a higher interest rate when you first get a car loan. As long as you maintain a good payment history on the car loan and other credit accounts you may be eligible to refinance the auto loan into a lower interest rate as your credit score improves. Be sure the auto loan does not have a prepayment penalty or any other penalties involved in refinancing.
InstantCarLoan is able to help over 30,000 people a month get financed regardless of their credit situation. They can even help consumers with bankruptcies in their credit files.
6. Correct your credit report
Check your credit report regularly to ensure all credit accounts included in the bankruptcy are properly reported as such. Any credit account included in the bankruptcy but reported as open and overdue will further lower your credit score. Dispute errors in reporting to the credit bureaus and demand the accounts be correctly reported as “included in bankruptcy.” Get your credit reports to check for errors.
If an account has been included in bankruptcy it cannot simultaneously be an open account. No further activity can continue unless you have filed a Chapter 13 bankruptcy. If you filed a Chapter 13 bankruptcy, stay on top of your plan payment to the Chapter 13 Trustee and make the payments in full each month.
How to use credit after bankruptcy
Make a budget and figure out what you can afford to pay every month on your debts after paying your necessary expenses. Only borrow what you can afford to pay back. Once you know your budget, you know what you can afford. If you know you cannot afford something, don’t use a credit card to fund it. Stay out of the credit card trap and use the card only for things you can afford to buy yourself.
When using new credit after a bankruptcy do not spend up to the limit. For revolving credit (credit cards), always use the 30% rule. Charge no more than 30% of your credit limit. Make more than the minimum payment every month. Make your payments on time and pay it off when you can.
Pay revolving credit off each month in order to develop good credit habits. Use credit accounts regularly to demonstrate how well you manage credit and debt. Be careful not to over do it in getting new credit. While you need credit accounts to rebuild credit after bankruptcy, stick with a modest amount of credit accounts.
In case you find yourself unable to qualify for any credit, try easy approval credit cards. This type of credit generally involves a low or no credit score to qualify for an account.
Rebuilding credit after bankruptcy is a process of maintaining any current credit accounts, adding revolving credit such as credit cards and adding installment loans such as a mortgage, car, personal or student loan. A variety of credit will help rebuild credit history quickly.