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Guide to rebuild credit after bankruptcy: Steps for Chapter 7 and 13

rebuild credit scores after bankruptcy

“Qualifying for mortgage loans, auto loans and credit cards, with good rates, is possible long before a bankruptcy comes off your credit report.”

There’s no doubt the decision to file bankruptcy is not something done lightly. The debt relief bankruptcy provides comes with cost. Bankruptcy stays on your credit report for up to 10 years. It’s one of the biggest negative marks on a credit report. But your credit score does not have to suffer for 10 years.

You can begin taking steps to rebuild your credit score and history soon after bankruptcy. If you’ve recently filed bankruptcy your main focus should be managing your finances while adding positive credit accounts to your credit report. As your bankruptcy gets older you will have positive credit information getting older along with the negative bankruptcy listing. By using new credit wisely you can rebuild your credit within as little as 12 months of the bankruptcy discharge.

It may seem counter-intuitive to get new credit but using credit is how you rebuild credit. Making monthly payments on credit cards or loans is the only way creditors can report payments to the credit bureaus. The credit bureaus list your payment history on your credit report, which shows potential new creditors that you can manage debt well.

The negative effects on your credit score will begin to decrease once the bankruptcy case is discharged and positive credit information is added. Below are tips that will give insight on how to rebuild credit after bankruptcy.

Steps to Rebuild Credit after Bankruptcy

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. Start rebuilding credit history with the following type of credit accounts reporting to your credit files:

  • 2 to 3 revolving accounts (credit cards) that have a low utilization rate of 10% or less. That means never charge over ten percent of your available credit unless you pay the bill in full each month.
  • At least one installment loan (car, mortgage, personal or student loan) will help you rebuild your credit history and scores. But only take on an installment loan if you are able to afford the commitment of a fixed monthly payment. If your BK included making mortgage or auto payments, make sure they are paid on-time

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. Let me reiterate that you should keep your balances low and do not charge more than 10% of your available credit. A good rule is to use a credit card for things you would normally buy with cash, like gas and groceries. That way you can easily repay in full every month.

3. Unsecured credit cards

Consumers that have filed bankruptcy may be surprised to receive a flood of credit card and loan offers after the bankruptcy is discharged. But there are just a handful of credit card companies that really cater to consumers who have filed bankruptcy like the First Access Visa® Card. Credit unions can also be a good source for credit cards to help rebuild credit. Because credit card issuers will likely view you as a poor credit risk, expect the terms to include a higher interest rate and possibly an annual fee.

4. Secured Credit Cards

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 re-establish credit. It has a low annual fee of $35. You can choose your credit limit from $200 to $3,000 and they report monthly to the three major credit bureaus. With at least 6 months of on-time payments this card may increase your limit without requiring additional deposits.

5. Retail credit accounts

In case you find yourself unable to qualify for a Visa or Mastercard, try an easy to get retail card like Fingerhut credit. They will work with practically anyone and the card reports to the major credit bureaus. Fingerhut also provides regular credit line increases with good payment history. Be careful when applying for retail credit accounts because they tend to have some of the highest interest rates. If you do get a high interest credit account paying in full each month alleviates the high interest.

6. Pay bills before the due date

Any debt not included in bankruptcy, such as student loans, must be paid on time. Student loans are normally not dischargeable through bankruptcy. But this can have a positive impact on your credit score. As you pay down student loans your credit score will improve. Making timely payments is one of the best ways to repair your credit after bankruptcy.

7. 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 credit history.

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 bureaus and may help improve credit scores. Avant makes loans to people with imperfect credit. You can also apply for a secured personal loan with as little as $500 for the deposit. Check with your local credit union about secured loans or lookup a credit union here.

Mortgage Loan. If you have filed bankruptcy you will not be barred from ever obtaining a mortgage loan but you will not be able to get one immediately. When you can get a mortgage after bankruptcy will depend upon the type of loan you want, the type of bankruptcy you filed, and how good your credit is at the time you want the loan.

  • Chapter 7 BK– To obtain an FHA loan or a VA loan after a Chapter 7 bankruptcy, you must wait 24 months from the date your Chapter 7 is discharged. For a USDA loan, you must wait three years from the date of a Chapter 7 discharge. Conventional loans have the longest waiting periods. If you want a conventional loan, you must wait four years after receiving a Chapter 7 discharge.
  • Chapter 13 BK– You can obtain an FHA loan or a VA loan during a Chapter 13 bankruptcy as long as you have made 12 months of satisfactory Chapter 13 plan payments, but you must have bankruptcy court approval to get the loan. For a USDA loan, you must wait 12 months of making Chapter 13 plan payments, with court approval. For a Conventional loan you must wait two years after receiving a Chapter 13 discharge. If your Chapter 13 case was dismissed without a discharge, you must wait four years from the date of the dismissal.

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.

8. Debts that survived bankruptcy can help rebuild credit

If you have debts such as student loans, car loans, or mortgage loans, you can also use these to rebuild your credit. By making your payments in full and on time you can increase your credit score and build a new positive credit history.

9. 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.

10. Monitor your FICO credit scores

After the bankruptcy discharge monitor your credit report and FICO score regularly. It will cost you but it’s best to get your credit reports and FICO scores from There are many sites that offer free credit scores but you want your FICO score as it is used by 90% of banks and lenders.

How to use credit after Bankruptcy

Make a budget. 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.

“Make no mistake, using credit cards is a loan. You are essentially borrowing money from the credit card company when you use credit cards. So only borrow what you can afford to pay back.”

Never max out credit cards. When using new credit after a bankruptcy do not spend up to the limit. For revolving credit (credit cards), always use the 10% rule. Charge no more than 10% of your available credit limit. Make more than the minimum payment every month. Make your payments on time and pay it off when you can.

Pay in full each month. 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.

Set up automatic payments. Set up automatic payments by having your payments deducted directly from your bank account every month on the due date. That way you’ll never miss a payment even if you don’t remember.

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 more quickly.

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