How to Rebuild Credit After Bankruptcy

Insolvency is a difficult legal process that can have a devastating effect on your credit score. The good news is, however severe the damage to your credit, it will not last forever.

A bankruptcy will remain on your credit report for seven to ten years, but its impact will diminish over time. In the interim, you can begin improving your credit immediately by taking proactive measures.

• Maintain payments on non-bankruptcy accounts

Determine, after filing for bankruptcy, which accounts were not closed. There is typically some remaining debt, such as student loans or alimony payments, after filing for bankruptcy.

Rebuild your credit after bankruptcy by making on-time and complete payments. Making consistent payments is essential to establishing credit. In addition, a lower credit utilization ratio is preferable.

• Avoid job hopping

Although job-hopping has no direct impact on your credit score, it can influence lenders. They want to ensure that you have a stable income and will be able to repay any loan you receive.

A lender evaluates your application for new credit or a loan based on various factors, including your income, employment history over the past 24 months, credit score, and other factors. Even after bankruptcy, having a stable job increases the lender’s confidence in your ability to repay your loan.

• Request new credit

Obtaining new credit after a Chapter 13 or Chapter 7 bankruptcy is typically difficult. Interest rates and fees may be higher, and approval may be more difficult.

However, it is imperative that you obtain new credit after bankruptcy to demonstrate that you are a responsible borrower. As previously mentioned, establishing a history of on-time payments can provide you with the means to begin seeing your credit score improve. Ensure that any new credit line is reported to the three major credit bureaus: Experian, TransUnion, and Equifax.

• Consider obtaining a cosigner or Authorized User

After bankruptcy, having a cosigner on loan or lease can increase your chances of approval. A cosigner serves as your legal financial backer if you fail to make payments. When you have a cosigner, credit is still approved in your name. Still, making payments on these accounts can help you improve your credit score.

Your Turn to Become the Authorized User

Additionally, you can become an authorized user on another person’s credit card. Ask a relative or close friend to add you to their credit card account. If the credit card issuer reports payments to the credit bureaus, payments should appear on both your credit report and theirs.

• Be prudent when requesting new credit

Each application for credit results in a hard inquiry on your credit report. Too many hard inquiries in a short time can negatively impact your credit score, as lenders view this as risky behavior.

If you are frequently denied for new credit cards, it may be because their requirements are too stringent for your current credit profile. Keep an eye on your credit score and be aware of the underwriting standards of issuers in order to apply for credit more intelligently.

Better credit history

Additionally, you can apply for a secured credit card or become an authorized user. You can also enroll in a service that will report your rent payments to the credit bureaus. Over time, your chances of being approved for credit cards with stricter requirements will improve if you have a better credit history.

• Maintain payments on new credit cards

The most significant factor in determining your credit score is your payment history. Once you have new credit, on-time payments are crucial, especially after a bankruptcy.

• Permit reporting of your payments to the credit bureaus

Ask creditors and lenders if they report your activity to the bureaus, as they are not required to do so. Any lender or creditor with whom you work after bankruptcy should ideally report to all three bureaus, so that your positive activity is recorded and your credit score is boosted.

Even non-credit-related payments (such as rent and utilities) can be reported to the bureaus. Not all credit scoring models include these payments when calculating your score, but having this alternative credit information in your credit history won’t hurt.

• Keep your account balances low

When your credit card balance is low, it indicates that you are using a smaller proportion of your available credit. A credit utilization ratio of less than 30 percent is recommended by experts. A low credit utilization ratio is one indicator to lenders that you will repay your debts.

• Check your credit report to ensure that your bankruptcy is recorded accurately

Credit is severely harmed by bankruptcy, but errors can make the damage worse. For instance, debts listed as active or delinquent instead of discharged may negatively impact credit reports.

After bankruptcy, be sure to review your free credit reports. Immediately contest an error if you discover it. Farmer & Wright PLLC can assist you in removing bankruptcy-related marks from your credit report.

Take note of unfair credit reporting!

Numerous consumers observe instances of inaccurate and even unfair credit reporting. Be aware that your previous bankruptcy should no longer appear on your credit report after seven (Chapter 13) or ten (Chapter 7) years have passed.