Bankruptcy may be inevitable if you get too deeply in debt and have no way to pay it all back. While bankruptcy will get your bills under control, it will also have a negative effect on your credit score. Depending on the terms of your settlement, it will stay on your credit reports for up to 10 years. While bankruptcy causes some challenges, there are ways you can restore your credit. It will take some time, but with the right steps you can slowly but surely restore your credit score.
Step 1
Get a copy of your credit report from Transunion, Experian and Equifax. All three of the major credit bureaus must give you a free copy every year if you request it. Make sure the information on your reports reflects the terms of your bankruptcy. For example, Liz Pulliam Weston of MSN Money warns that debts that were included in the bankruptcy might still be showing as past due.
Step 2
Dispute any errors you find on your credit reports. This should include errors due to outdated information that should have changed after the bankruptcy and any other incorrect, negative information. The credit bureaus must remove these items if they cannot be verified. Filing appropriate disputes will help restore your credit by removing some of the negatives.
Step 3
Open a new credit card account. You may have to open a secured credit card acccount, which means you will have to make a deposit to guarantee payment of the card. You put money into a bank account, and your credit limit is equal to the amount of your deposit. However, Liz Pulliam Weston says you should try to get an unsecured card first. Some card issuers are willing to take a risk on people trying to restore their credit after bankruptcy. You may have to pay an annual fee and a higher interest rate to offset the issuer's risk.
Step 4
Get an installment loan. You may not be able to get it right away, but if you make your credit card payments promptly, you will eventually be able to qualify. According to FICO™ (previously the Fair Issac Corporation), part of your credit score is based on the types of accounts that you have. A variety of accounts will help you restore your credit more quickly after a bankruptcy.
Step 5
Make every payment on time. Send your payments in early to make sure they reach your creditors by the due date. FICO says that your payment history has the biggest influence on your credit score, accounting for 35 percent of your score. If you can maintain a perfect payment history, you'll restore your post-bankruptcy credit as quickly as possible.
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