How long does it take to rebuild your credit after bankruptcy?
Once your bankruptcy is discharged, you can start rebuilding your credit right away! A discharge means that you have successfully completed your bankruptcy and you no longer need court clearance to take on new debt, but that doesn’t mean you should take on a lot of debt at once. . Collecting credit after bankruptcy takes care and patience, and we’re here to give you some advice.
How Bankruptcy Affects Your Credit
Credit repair can be a long journey, but it might not be as long as you think. Although bankruptcy can impact your credit score for a while, time heals your credit reports.
If you’ve filed for Chapter 13 bankruptcy, the good news is that your bankruptcy is only listed on your credit reports for up to seven years, from the date you filed. Since Chapter 13 typically lasts three or five years, you only have two to four years to get it reported on your credit reports if all goes well. Once it falls, that’s it – no more negative impact of bankruptcy on your credit score.
Chapter 7, however, can stay on your credit report for up to ten years from the date of your filing. This type of bankruptcy is much shorter and typically only lasts four to six months. This is called liquidation bankruptcy and your assets are sold to pay off your creditors unlike Chapter 13 where you work with your trustee to pay off your debts. Because of this, Chapter 7 stays on your credit reports longer.
However, even though your bankruptcy is expected to impact your credit reports for a few more years, that doesn’t mean its impact stays the same during that time. Negative brands lose some of their power with each passing year, including bankruptcy. It may take a few years for your credit score to fully recover from bankruptcy, but we can offer some tips to get you started in the right direction.
Credit repair tips for bankrupt borrowers
No matter what chapter of bankruptcy you’ve been through, one of the best ways to repair your credit afterward is to understand what constitutes your credit score and accept new credit responsibly.
The first step to repairing your credit is knowing what is going on with your credit score:
- Payment history – 35%
- Amounts due – 30%
- Length of credit history – 15%
- Credit mix – 10%
- New credit – 10%
This is what constitutes your FICO credit score, the most commonly referenced model. The most important thing to watch out for is payment history. By making all of your payments on time, you are striving for a good credit rating. However, you must have reported credit if you want “credit” for these timely payments.
Accounts that typically report your payments on a timely basis to the credit bureaus automatically include:
- Auto loans
- Secured or unsecured credit cards
- Constructors credits
- Certain personal loans
Other items such as utilities and even streaming services may be flagged but usually require the help of credit reporting services. However, many credit reporting services are free. Some things you might be able to get on your credit reports include:
- Rent payments
- Subscription services (like Netflix)
- Water and / or electricity bills
- Cable invoices
- Telephone bills
- Insurance premiums
If you have an unreported monthly expense and want those timely payments factored into your credit score, consult our trusted partner for more information.
However, while not all one-time payments you make are likely to be reported, missed or late payments can be reported by creditors even if that account is not actively listed. If you’ve paid your auto insurance premiums but miss a few payments and this account goes to collections, it may show up on your credit reports as a negative account. Even if something isn’t normally reported, it can still hurt your credit if you don’t stay up to date.
How Much Credit Should I Get After Bankruptcy?
There is no fixed recommended amount of credit for everyone. Everyone’s situation is unique, and the credit you should get after bankruptcy depends on what you can personally manage. It’s a good idea to take on reasonable credit after bankruptcy to start a positive repayment history, increase your credit variety, and show future lenders that you can be financially responsible after bankruptcy.
By only taking new credit when you need it, you are more likely to repay your loans successfully and maintain a positive repayment history. It is not advisable to immediately take out multiple credit cards or installment loans shortly after a discharge from bankruptcy. These difficult in-app draws can damage your credit for up to 12 months – typically around five to 20 points per draw.
However, having a few credit cards with manageable monthly payments and one or two installment loans that show up on your credit reports can increase your payment history and credit mix, thereby improving your overall credit score. The key is moderation and balancing your credit with what you can realistically track.
Installment loans like auto loans can be a great way to build a payment history and prove your ability to responsibly repay credit (i.e. your creditworthiness). And there are auto lenders who can help bankrupt borrowers.
Auto loans in bankruptcy
Getting new credit after bankruptcy can be a challenge. Since bankruptcy can wreak havoc on your credit score, you might find it difficult to meet the credit score requirements of traditional auto lenders. To take out a car loan and start repairing your credit after bankruptcy, working with a special financial dealership can increase your chances of getting approved.
Special financing concessionaires are signed with subprime lenders. They specialize in assisting borrowers with many unique credit circumstances, such as past bankruptcy. Instead of just using your credit score to determine your creditworthiness, they look at your income, overall financial stability, and credit reports as a whole to get a better idea of you as a borrower.
Getting approved for a subprime auto loan starts with finding a special financial dealership – and we want to help. AT Auto Express Credit, we’ve created a nationwide network of dealerships who are registered with subprime lenders, and we want to help you find one near you. Get started now by filling out our free auto loan application form, and we’ll search for a dealership in your area who is registered with bankrupt auto lenders.