What Should I Do to Re-establish Credit After Filing Bankruptcy?

First, request a copy of your credit report from all three credit bureaus and review each carefully to make sure you are truly getting a fresh start. Any creditor included in your bankruptcy petition should have a zero balance or state, “discharged in bankruptcy” next to the balance. There are often many errors on credit reports following a bankruptcy. If you find errors, dispute them with the credit bureau and they will be corrected. Once you have a clean slate, it’s time to start re-establishing your credit.

Credit Cards: Don’t be surprised when you get credit card offers, sometimes weeks after you get your bankruptcy discharge papers in the mail.

Unsecured: Post-bankruptcy unsecured credit cards normally carry higher fees than other cards, because the creditors are taking a risk on you. All they know about you is that you just wiped away a bunch of debt from companies just like them. They’re a little skittish, so for comfort, you pay for the privilege of starting over. This will show up in the form of: monthly charges, application fees, and, of course, higher interest rates. Use the cards as little as possible to avoid carrying balances on these high-interest accounts. Try to pay the balances off before the end of each billing cycle. Do this for six to twelve months and you will improve your credit score.

Secured: These are an excellent option to rebuild while avoiding the fees associated with unsecured cards. The downside to secured cards is that you have to put up a deposit equal to your credit limit at the time the account is opened.

Auto Loans: Unsecured installment loans are difficult to get immediately after bankruptcy; however, secured loans such as auto loans are relatively easy to get, provided you have sufficient income to budget and a down payment (usually 10 percent to 20 percent). The high dollar amount of auto loans makes them a perfect fit to re-establish after bankruptcy. Paying back a $10,000 loan will do more for your credit than timely payments on a small revolving balance, such as a credit card. Auto loans immediately after bankruptcy, like unsecured credit cards, can carry higher interest rates. Stick with an auto loan below your budget and pay extra principal every month to reduce the total interest.

Life after bankruptcy can be rough, but you aren’t alone. There are many people who have followed these steps and bounced back.