7 Steps to Rebuild Your Credit After Bankruptcy

Although it may seem difficult to make the decision to file bankruptcy, the complex legal process can also be very damaging to your credit. The impact of bankruptcy on credit cards record is temporary and can last from seven to ten year depending on which type of bankruptcy. 

The negative effects of bankruptcy are temporary and can be reversed by many credit repair methods.

BankruptcyHQ Advisor is here to help you. Here are the steps to help you regain control of your finances and get back on track after a bankruptcy.

1. Check your credit report

If you are trying to rebuild your credit after bankruptcy, it is a good idea to start by reviewing your credit report. AnnualCreditReport.com provides all customers with a free copy of their credit report. 

Normally, reports are provided only once per year. However, in the wake of the Covid-19 outbreak, customers may be able to receive free weekly reports up until April 20, 2022.

Knowing what factors affect your credit score can help you make better decisions and gain insight into why your score has been rising. It will also help you identify errors that could lower your score such as incorrect account information, public records, or other misinformation.

Your credit report can also be used to help ensure your bankruptcy is removed as quickly as possible. This happens after seven years for Chapter 13 bankruptcy filings and ten years for Chapter 7.

2. Pay attention to your credit score

Although a bankruptcy will most likely result in a reduction of 100 to 200 points in your credit score (but this fluctuates and the effects improve with time). It is important to check your credit score monthly in order to rebuild your credit after bankruptcy. 

To do this, create an account using a free online service. Many credit card issuers offer free score updates for their clients.

To ensure that the adjustments have been properly recorded, you can check your score after your accounts are closed during bankruptcy proceedings.

To prevent future credit scores from falling, keep an eye on your credit score. These could include fraudulent loan applications, incorrect account statuses or legal cases in which you are not involved. 

It may take some time to improve your credit score. However, it is worth keeping an eye on your credit scores every day.

3. Develop credit-responsible habits

While your bankruptcy will fade from your memory, your credit score will increase. However, to truly repair your credit, you must have good financial habits. Here are some suggestions to get you started:

  • Be punctual and pay on time. Your payment history is responsible for 35% of your FICO Score. It’s important to pay on time and maintain good credit ratings after bankruptcy. You can boost your credit score by paying regular, on-time bills such as utilities.
  • Reduce your credit card debt. It all depends on how you ended up in bankruptcy. One of the biggest dangers is falling back into the same bad habits that caused you to get into trouble. It may be possible to reduce or eliminate your credit card usage and lower the likelihood of it happening.
  • Keep a small credit balance. Your FICO Score is 30% affected by the amount you owe. To re-establish credit after bankruptcy, it is important to have low credit debt. You can do this by limiting your credit card usage and paying your monthly amounts.
  • Make an emergency savings account. Save money for emergency savings account if you can. This will allow you to be prepared for unexpected expenses such as car repairs or medical bills. This will help you avoid future debt which could impede or reverse your credit-rebuilding efforts.
  • Take your time. It is important to be patient. It can take between two and two years to fix your credit after bankruptcy. It is important to maintain good credit habits even after your score improves.

4. Get a Protected credit card

After filing for bankruptcy, reducing your dependence on credit cards could help you rebuild your credit. Secured credit cards can help you rebuild your creditworthiness with lenders.

Secured credit cards require a refundable security deposit. This is used to make loans. These cards are not eligible for conventional cards with better terms, but they can be used to show responsible credit behavior.

After you have made on-time payments to a secured card for a specified period, you might be eligible to “upgrade to an unsecured” card. If your credit score improves, you don’t need to apply for an unsecured card.

Be aware that applying for a secured credit card does not guarantee approval. Make sure you do your research on the criteria of the provider before applying. If possible, choose a company that offers prequalification to determine if your application will be approved. 

This will allow you to know if you are eligible before you consent to a hard credit review that could further damage your credit score.

5. Consider a credit-builder mortgage

Credit builder loans are another way to improve credit without applying for a conventional loan. A credit-builder loan is where the lender deposits a specified amount of money into the borrower’s account in a certificate of deposit or secured savings account. The loan is then paid monthly, plus interest, by the borrower until it is fully paid off.

You may be eligible for a secured loan depending on the bank. This allows you to borrow money out of your savings account. Credit-builder loans are reported to the major credit agencies by the financial institution, in much the same way as conventional loans. This can help you build your credit score.

6. Use a cosigner

A co-signer is someone who will help you qualify for a loan, lease or other financial assistance after bankruptcy filings. A co-signer is someone who guarantees to pay back a debt if you don’t. 

While the co-signer does not have any rights to the loan money or the financed property, they can be held responsible for the amount of the outstanding loan amount if the principal borrower fails to make timely payments. Your credit score can be affected if you default or skip payments.

You should be careful about asking your co-signer. Be patient if they decline. Ask a family member or friend who is financially stable to be your co-signer.

7. Ask about becoming an authorized user

Although it can be difficult to get a cosigner for a loan, it is usually easier to establish credit as an authorized credit user on another person’s credit card. An authorized user is someone with a card that’s linked to another borrower rather than their own. 

The card will allow you to make purchases without having to fulfill the account’s requirements. However, you can’t change anything about the card.

Credit card payments will show up on your credit report. If you pay them on time and maintain a low credit utilization rate, your credit score will improve. 

To improve your credit score, ensure that all authorized user payments are reported directly to the major credit bureaus. Although it isn’t as efficient as other credit-building strategies this may still be useful as part of a larger plan.

What is the average time it takes to rebuild credit after filing for bankruptcy?

Perhaps the most frustrating aspect of bankruptcy filings is the time required to rebuild your credit. The length of time that a bankruptcy stays on your credit report depends on which type of bankruptcy you have. Credit repair is also affected by whether the borrower makes conscious efforts to improve his credit score.

How long will it take to rebuild credit after a Chapter 7 bankruptcy?

A Chapter 7 bankruptcy will remain on the borrower’s credit report for ten years. All bankruptcy records must be removed from your credit reports after ten years.

The effect of bankruptcy on credit scores decreases over time due to the immediate fall in consumer’s debt to income (DTI). This ratio measures how much credit you have available and how much you owe. You may start to see the benefits within one to two years of your discharge.

How long will it take to rebuild credit after a Chapter 13 bankruptcy?

A Chapter 13 bankruptcy does not affect a consumer’s credit history for seven years, unlike a Chapter 7 bankruptcy. It may take 12-18 months to repair your credit score after your Chapter 13 bankruptcy has been discharged. Many debtors can refinance modified debt after 18 months.

 

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