7 Easy Ways to Rebuild Your Credit After Bankruptcy – Forbes Advisor

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Deciding to file for bankruptcy is often difficult – and complicated legal process can be not only challenging but also detrimental to your credit. However, the effect of bankruptcy on your credit report is not permanent and will last for seven or 10 years, depending on the type. In addition, the impact of bankruptcy decreases over time and there are several ways to improve your rating in the meantime.

The Forbes Advisor is here to help. We have described the following steps to regain control of your finances and get on the right track after a bankruptcy.

1. Check your credit report

If you are trying to repair your credit after bankruptcy, start by familiarizing yourself with your credit report. All consumers can access a free copy of their credit report via AnnualCreditReport.com. Free reports are usually only available once a year — but in the aftermath of the Covid-19 pandemic, consumers can access free weekly reports until April 20, 2022.

Understanding what your credit score is can make it easier for you to make targeted improvements and provide information about why your score is rising or not. You will also be able to detect any errors that lower your score — such as incorrect account information or inaccurate public records.

Examining your credit report can also help confirm that your bankruptcy is being removed from your report as soon as possible — after seven years for a Chapter 13 bankruptcy and after 10 years for a Chapter 7 bankruptcy.

2. Keep track of your credit score

Bankruptcy is likely to cause an initial drop in your score of 100 to 200 points or more, although this varies and results improve over time. Checking your credit score from month to month is a crucial step in improving your post-bankruptcy rating. To do this, create an account with a free online service. Many credit card companies also offer free rating updates to their customers.

Once your bills have been paid in the bankruptcy process, check your rating to confirm that these changes were accurately reported.

To avoid further reductions, monitor your credit score for any red flags that may indicate identity theft or other issues. This may include fraudulent loan applications made in your name, inaccurate account statements or civil lawsuits or decisions in which you did not participate. While rating increases may come in handy, regular checking of your credit score is also an effective way to stay motivated as you take steps to improve your credit habits.

3. Practice responsible credit habits

Your credit score will improve as your bankruptcy fades in the past, but sound financial habits are essential to truly rebuilding your credit after bankruptcy. Follow these tips to get started:

  • Make consistent, timely payments. The payment history corresponds to 35% of the calculation of the FICO rating, so it is imperative that you make timely payments when restoring credit after bankruptcy. In addition to making consistent, timely payments, stay informed about other accounts, such as utilities, as they can also improve your ranking through services such as Experian Boost.
  • Reduce your credit card usage. Depending on how you got into bankruptcy, one of the biggest risks may be falling into the same habits that led to financial problems before. Reducing your credit card usage — or avoiding it altogether — can reduce the temptation to spend and reduce the likelihood that this will happen.
  • Keep your credit balances low. The balance you owe is 30% of the FICO score calculation. For this reason, keeping your credit balance low is an integral part of restructuring your credit after bankruptcy. To do this, try to reduce the use of the card and aim to pay the balances each month.
  • Create an emergency savings fund. If possible, aim to raise money to create emergency savings to cover unexpected expenses, such as car repairs and medical bills. This can help you avoid future debts that may slow down or even reverse your credit recovery efforts.
  • Take your time. Be patient. The time it takes to rebuild your credit after bankruptcy varies depending on the borrower, but it can take up to two months to two years to improve your rating. Because of this, it is important to build and maintain responsible credit habits — even after your rating has been increased.

4. Get a secure credit card

Reducing your credit card dependency can be an important step in rebuilding your credit after bankruptcy. However, the strategic use of secured credit cards can also help you begin to repair your credibility in the eyes of lenders.

Obtaining a secure credit card requires a repayable guarantee and then borrowing against it. Although these cards tend to have high interest rates, if all three credit bureaus are listed, they are a great option to show responsible credit behavior until you are better qualified for a traditional card on more competitive terms.

Some secure cards even allow you to “graduate” on an unsecured card after fixed timely payments. This is a benefit, as you will not have to apply for a new, unsecured card when your credit has improved,

Keep in mind, however, that applying for an insured card does not guarantee acceptance, so take the time to research the provider’s requirements before applying. If possible, choose a provider that offers a default, so you can see if you are likely to qualify before agreeing to a tough credit check that could further damage your rating.

5. Consider a credit line

Credit loans are another way to build your credit without having to qualify for a traditional loan. With a home equity loan, the lender keeps a certain amount of money in a secured savings account or a deposit certificate in the name of the borrower. The borrower then makes monthly payments – including interest – until the loan is repaid.

Depending on your bank, you may also have the option of securing a mortgage loan where you can lend money already in your savings account. As with traditional loans, the financial institution reports lending activity to large credit bureaus, which can improve your rating over time.

6. Use a co-signer

If you find it difficult to qualify for a post-bankruptcy loan or rental agreement, a co-signer can help you qualify. A co-signer is someone who agrees to repay a loan if you, the principal borrower, do not. The co-signer has no right to the loan funds or the financed real estate, but will be liable for the outstanding balance of the loan if you fail to make timely payments. Likewise, their credit score will also be damaged if you miss payments or defaults.

For these reasons, you should carefully consider who you are asking to serve as your co-signer and understand if they refuse to do so. To find a co-signer, ask a friend or family member who is financially stable, and then give an easy exit — just because someone can serve as a co-signer does not mean that they are willing to do so.

7. Ask to Become an Authorized User

Getting someone to sign up for a loan can be a daunting task, but building your credit as an authorized user on someone else’s credit card is often more feasible. Being an authorized user presupposes the existence of a card in your name that is connected to the account of another borrower and not to yours. You will be able to use the shopping card without having to qualify for the account to your advantage — but you will not be able to modify the account.

Credit card payments will appear on your credit report, so if these payments are made on time and your credit usage rate remains low, your rating will improve over time. Just make sure the credit card company reports payments from authorized users to the three major credit bureaus so that you have a better chance of increasing your rating. Although this is not as effective as other methods of increasing credit score, it can be useful as part of a broader strategy.

How Long Does It Take To Rebuild Your Credit After Bankruptcy?

Perhaps the most frustrating part of a bankruptcy filing is the time it takes to rebuild your credit after the event. The length of time a bankruptcy stays on your credit report varies depending on the type of bankruptcy. In addition, the credit repair process depends to a large extent on whether a borrower takes deliberate steps to actively improve his / her rating.

How long does it take to rebuild your credit after the bankruptcy of Chapter 7?

The Chapter 7 bankruptcy remains on the borrower’s credit report for 10 years. This means that after 10 years, all bankruptcy records must be removed from your credit report. That said, the impact of bankruptcy on credit scores is diminishing over time — due in part to the immediate reduction in the consumer’s debt-to-income ratio (DTI), which is how much you owe relative to the amount of credit you have available. Because of this, you may start to see improvements in just one to two years after leaving.

How long does it take to rebuild your credit after the bankruptcy of Chapter 13?

Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy remains in a consumer’s credit report for only seven years. Generally, however, it takes 12 to 18 months for you to start improving your credit score after clearing the Chapter 13 bankruptcy. Many borrowers can refinance their restructured debt after 18 months.

Increase your FICO® rating instantly with Experian Boost ™

Experian can help you increase your FICO® rating based on billing, such as your phone, utilities, and popular streaming services. Results may vary. See the website for more details.

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