How to Rebuild your Credit after Bankruptcy?
Bankruptcy can be the first step towards rebuilding your credit. It is likely, that the mere fact of filing bankruptcy will improve your FICA score by approximately 100 points in the first fifteen months after filing bankruptcy. This is due to the fact that most or all of your debts will be eliminated by the bankruptcy.
If you do not discharge your debts in bankruptcy, your credit report will continue to show negative items such as late payments for up to seven years. Accordingly, if you paid your credit card late, that fact can still be seen by your creditors for the next seven years. If you have a judgment against you, that judgment will be enforceable for up to 20 years, which means not only will that creditor be able to garnish your salary and take the money from your bank account for the next 20 years. In addition, that judgment will appear on your credit report for the next 20 years.
The fact that you filed bankruptcy will remain on your credit report for 10 years; however as time goes by the fact that you filed bankruptcy will become less important. What will start to matter more is what you have done since you filed bankruptcy. The following are ways to immediately begin rebuilding your credit:
- If you reaffirm your car loan or mortgage in your bankruptcy and continue to make timely payments. When you file bankruptcy you can agree to continue to responsible for these debts. When you reaffirm the debts, the creditor will continue to report your payments to the credit reporting agencies.
- If you file bankruptcy and don't owe anything on one or more credit cards, you do not list them in your bankruptcy petition. Accordingly, and may be able to keep those credit cards after your obtain your discharge. Use of and payment of those credit cards may help to rebuild your credit. It's important not to use those credit cards before you obtain your discharge. Also, there is no guarantee that the creditor will allow you to keep a credit card, even with a zero balance. Further, if you owe a balance on a credit card, it must be listed in your petition.
- After receiving your discharge you can obtain a secured credit card to start improving your credit report. When you obtain a secured credit card you give money to the credit card issuer for deposit in a savings account, which will be held as security in the event you don't pay your credit card bill. When opening such an account, make sure that the credit card company is legitimate. Once you have established a good payment record, they will increase your credit line and eventually will likely offer you an unsecured credit line.
- Once you receive your discharge in bankruptcy it is likely that you will receive many credit card offers in the mail. The creditors know that you owe little or no debt and can't immediately go out and file bankruptcy again so they see you as a good credit risk.
- Once you have obtained your discharge in bankruptcy, if you qualify, you will be able to obtain a car loan. This is due to the fact that car loans are secured by the car and can be easily repossessed.
- Two years after receiving your discharge, if you qualify, you should be able to qualify for a mortgage and buy a house, condo or coop.
The above assumes that you are working and have sufficient income to qualify for the credit requested.
In order not to get into debt again I suggest that you limit yourself to no more than one or two major credit cards, one or two store cards and one gas card. If you can't pay your credit card bill in full at the end of the month, don't use credit again until the bill is paid in full. Establish a budget and start saving money. Put aside enough money to live on for at least three months if you lose your job. You should begin saving for important items such as college for your children, purchase of a home and for your retirement.