7 Easy Ways To Rebuild Your Credit After Bankruptcy – Forbes Advisor

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The decision to file for bankruptcy is often difficult, and the complex legal process can not only be difficult, but also hurt your credit. However, the effect of bankruptcy on your credit report does not last forever and will last for seven or 10 years, depending on the type. Plus, the impact of bankruptcy diminishes over time, and there are several ways you can improve your score in the meantime.

Forbes Advisor is here to help. We’ve outlined the steps below to take back control of your finances and get you on the right track after bankruptcy.

1. Check your credit report

If you’re trying to repair your credit after bankruptcy, start by familiarizing yourself with your credit report. All consumers can access a free copy of their credit report via AnnualCreditReport.com. Free reports are typically only available once a year, but following the Covid-19 pandemic, consumers can access free weekly reports until April 20, 2022.

Understanding what makes up your credit score can help make targeted improvements and provide insight into why your score is increasing or not. You’ll also be able to spot errors that lower your score, such as incorrect account information or inaccurate public records.

Examining your credit report can also help you confirm that your bankruptcy is removed from your report as soon as possible, after seven years for a Chapter 13 bankruptcy and after 10 years for a Chapter 7 bankruptcy.

2. Monitor your credit score

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

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

To avoid further drops, monitor your credit score for any red flags that may point to identity theft or other issues. This can include fraudulent loan applications made on your behalf, inaccurate statements of account, or civil lawsuits or judgments in which you were not involved. While score increases can come slowly, regularly checking your credit score is also an effective way to stay motivated as you take action to improve your credit habits.

3. Adopt responsible credit habits

Your credit score will improve as your bankruptcy wears off in the past, but healthy financial habits are necessary to truly rebuild your credit after bankruptcy. Consider these recommendations to get started:

  • Make consistent, on-time payments. Payment history accounts for 35% of your FICO score calculation, so it is imperative that you make payments on time when rebuilding credit after bankruptcy. Besides making consistent and on-time payments, stay on top of other bills, like utilities, as they can also improve your score through services like Experience boost.
  • Reduce your credit card use. Depending on how you got into bankruptcy, one of the biggest risks may be falling back into the same habits that once caused you financial problems. Reducing your credit card use or avoiding it altogether can temper the temptation to spend and reduce the likelihood of it happening.
  • Keep your credit balances low. The balance you owe is 30% of your FICO score calculation. For this reason, keeping your credit balances low is an integral part of rebuilding credit after bankruptcy. To do this, try to reduce the use of the card and try to pay off the balances each month.
  • Create an emergency savings fund. If possible, try to set aside money to build an emergency savings reserve to be covered for unforeseen expenses such as car repairs and medical bills. This can help you avoid incurring future debt that can slow down or even undo your efforts to rebuild your credit.
  • Take your time. Be patient. The time it takes to rebuild your credit after bankruptcy varies depending on the borrower, but it can take anywhere from two months to two years for your score to improve. For this reason, it’s important to adopt and stick to responsible credit habits, even after your score has increased.

4. Get a secure credit card

Reducing your dependence on credit cards can be an important step in rebuilding credit after bankruptcy. However, the strategic use of secured credit cards can also help you begin to repair your reliability in the eyes of lenders.

To purchase a secured credit card, you must make a refundable security deposit and then borrow against it. While these cards tend to carry high interest rates, if they fall under all three credit bureaus, they are a great option for displaying responsible credit behavior until you are better qualified for a traditional card. with more competitive conditions.

Some secure cards even allow you to switch to an unsecured card after regular payments on time. This is an advantage since you won’t have to apply for a new unsecured card when your credit improves,

Keep in mind, however, that applying for a secure card does not guarantee acceptance, so take the time to research the provider’s requirements before applying. If possible, choose a provider that offers prequalification so you can see if you’re likely to qualify before agreeing to a serious credit check that can further damage your score.

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 loan, the lender holds a certain amount of money in a secured savings account or a certificate of deposit in the name of the borrower. 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 loan payment activity from credit builders to major credit bureaus, which can improve your score over time.

6. Use a co-signer

If you have trouble qualifying for a loan or rental agreement after filing for bankruptcy, a co-signer can help you qualify. A co-signer is someone who agrees to repay a loan if you, the primary borrower, don’t. The co-signer has no right to the loan funds or the financed property, but will be responsible for the outstanding loan balance if you do not make the payments on time. Likewise, their credit score will also be damaged if you miss payments or default.

For these reasons, you should carefully consider who you are asking to be your co-signer and be sympathetic if they refuse to do so. To find a co-signer, ask a friend or family member who is financially stable, then come up with an easy solution. Just because someone is capable of co-signing does not mean that she is ready to do so.

7. Apply to become an authorized user

Getting someone to co-sign a loan can be a daunting task, but it’s often easier to build your credit as an authorized user on someone else’s credit card. Being an authorized user involves having a card in your name that is attached to another borrower’s account, not yours. You will be able to use the card to make purchases without having to qualify for the account on your own merits, but you will not be able to change the account.

Credit card payments will show up on your credit report, so if those payments are made on time and the credit usage rate remains low, your score will improve over time. Just make sure the credit card company reports authorized user payments to the three major credit bureaus so you have the best chance of increasing your score. While this doesn’t have as much of an impact as other methods of increasing a credit score, it can still be useful as part of a larger strategy.

How long does it take to rebuild your credit after bankruptcy

Perhaps the most frustrating part of filing for bankruptcy is the time it takes to rebuild your credit after the fact. The length of time that a bankruptcy stays on your credit report varies depending on the type of bankruptcy. Beyond that, the credit repair process largely depends on whether a borrower takes intentional steps to actively improve their score.

How Long Does It Take To Rebuild Your Credit After Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy stays on the borrower’s credit report for 10 years. This means that after 10 years all bankruptcy records should be removed from your credit report. That said, the impact of bankruptcy on a credit score decreases over time, in part because of the immediate reduction in the consumer’s debt-to-income ratio (DTI), which is the amount you owe to the amount available. credit you have. For this reason, you can start to see improvements in as little as one to two years after your discharge.

How Long Does It Take To Rebuild Your Credit After Chapter 13 Bankruptcy?

Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy stays on a consumer’s credit report for only seven years. Typically, however, it takes 12 to 18 months to start improving your credit score after your Chapter 13 bankruptcy is discharged. Many borrowers can refinance their restructured debt after 18 months.

Increase your FICO® score instantly with Experian Boost

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.

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