How to Rebuild Your Credit After Filing Bankruptcy

By Lisa Kroulik © November 18, 2011

If you have recently filed for bankruptcy, you may feel like a financial failure and that your life is over. Take it from me, it isn’t. I filed bankruptcy in November 2008, and three years later I still feel it is one of the best decisions I have ever made. Today, I am totally debt free other than a mortgage. I had some great luck along the way, including getting married last year to a financially stable man with no debts or dependents. Our combined income is something I could have only dreamed about in my old life.

You may be wondering how to go about rebuilding your credit after filing bankruptcy. Personally, I never bothered because I wanted nothing to do with credit ever again since it only caused me grief. Again, I was fortunate to get married to someone with an excellent credit history or I wouldn’t have the home or car that I have now. I get that not everyone is so fortunate, so the following is information that I hope will be helpful to you.

If you filed for Chapter 7 bankruptcy and had it discharged, you can expect it to remain on your credit file for 10 years from the date of filing. The way it affects your credit score depends on many factors, including whether your credit was poor prior to your bankruptcy. If it was, your score won’t dip nearly as dramatically as if you had decent credit and suddenly had to file bankruptcy.

You may be surprised to find some creditors actually approaching you than the other way around. In their minds, your debt has been eliminated due to bankruptcy and you can’t file again for another eight years. They probably figure that you are now a decent risk.

Chapter 13 bankruptcy, which reorganizes rather than eliminates debt, remains on your credit report for seven years from the time of filing.

If you are interested in rebuilding your credit history, most bankruptcy attorneys recommend that you wait for approximately three months after your bankruptcy discharge and then apply for a secured credit card. With a secured credit card, you are required to provide the credit grantor with funds that are enough to cover your credit line. In many ways, a secured credit card acts more like a debit card except that it your payment history is reported to the credit bureaus. If you handle the account well, you will build up a positive history and may eventually have your security deposit refunded. If that happens, the credit grantor may give you an unsecured account with a low credit limit.

Focus on paying your secured credit card on time and not exceeding the established limit for about a year. At that time, you may want to try for a small line of credit with a local store. A department store charge card is typically easier to qualify for than a major credit card, but you should not assume your application will be approved. If more than two companies deny your credit request, wait another six months and try again. Having too many inquiries into your credit file will lower your score.

If you are able to get a store card, pay it on time for another six months and try for an auto loan or a secured bank loan. Due to the way credit scores are calculated, you need to have positive history with several different types of accounts in order to have a good score. Credit grantors consider a score of 600 to be a good score, so you should aim for this eventually. A higher credit score means you will get better rates and terms on future credit transactions.

Bankruptcy is a golden opportunity to learn from your mistakes and get a fresh financial start, so that is what you should use it for. Assuming you had some control over the cause of your bankruptcy, take stock of what you did wrong and determine to do things differently. That may mean learning budgeting skills, trying to earn a higher income or swearing off credit altogether as I did.

There were several factors involved in my bankruptcy, including medical bills and a divorce outside of my direct control. However, I did make very poor choices in my rush and determination to be self-employed. I charged things first and sold them later. Sometimes, I got stuck with stuff I didn’t want because of my inexperience as a business person.

I am still self-employed, but I have learned a valuable lesson. I am no longer willing to spend money I don’t have to try to make money. Today, I am a freelance copywriter and I have had no business expenses beyond a few grammar books.