It can be extremely difficult to clean up your credit after a bankruptcy, warns the financial experts at Credit.com. Although credit repair companies may assure you that you can soon get back in the good graces of future creditors after filing for a Chapter 7 or 13 bankruptcy, the truth is that this black mark remains on your credit records for at least 10 years, making it very difficult to get financing of any kind. In fact, your options for clearing up your credit after bankruptcy are very limited, which is why bankruptcy, although a legal option to getting out of debt, should be considered your very last resort.
Your Credit After Bankruptcy
Step 1
Take a hard look at your credit reports. According to Liz Pulliam Weston, financial expert for MSN Money, many people who file for bankruptcy find that accounts on their credit reports are listed as open and overdue. Make sure that you notify the three credit bureaus--Experian, Equifax and TransUnion--that the accounts be listed as "included in bankruptcy." According to Weston, "It's the only way your credit can recover." If you need copies of your reports, you can access them through annualcreditreport.com in the Resources link below, the only site authorized to provide you a free annual credit report.
Step 2
Take out a secured credit card. Also known as a prepaid credit card, this requires you to deposit money into an account held by the credit card issuer that is used to secure your line of credit. Weston advises charging no more than 30 percent of your limit on the card and paying off the balance each month. Light, frequent use of a secured credit card can help clean up your credit after a bankruptcy.
Step 3
Pay off loans that aren't discharged under bankruptcy, such as a student loan, in a timely manner. Weston advises that you pay more than the minimum due on the loan whenever you can. In addition to paying down existing debts in a timely manner, paying them off completely is one of the best ways to clean up your credit after bankruptcy, Weston notes.
Step 4
Be realistic about how bankruptcy has affected your credit and make wise choices. If you do get credit, expect high interest rates and low credit limits. Credit.com notes that if you're considering a major purchase, such as a house or a car, reconsider--paying 15 percent on a home loan or 29 percent on a car loan can be burdensome. Credit.com also urges you to wait until your credit score improves to the mid-600s before you consider refinancing your home.
Step 5
Be patient. It takes quite a number of years, not just a few months, to re-establish your credit record and increase your credit score after bankruptcy. If you manage existing debts responsibly during this time, you'll eventually be able to get a conventional loan or another form of credit at prime interest rates.
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