A bankruptcy remains on a credit report for 7 or 10 years, depending on the type of bankruptcy. Fortunately, there are steps you can take to begin repairing your credit. Ironically, bankruptcy actually affords you the opportunity to make a fresh start in building your credit.
Step 1
Pay every bill that you have on time each month. Pave a path to good credit by not making any late payments. If you can't afford more, pay at least the minimum payment due. A good payment history shows potential lenders that you have made positive changes to your spending habits after going bankrupt.
Step 2
Open a savings account at a local bank. Commit to depositing some money in the account each payday. This will help you to build good saving habits. You will also be establishing yourself as a valued customer at the bank. Even maintaining a small savings account can show you can control your financial behavior.
Step 3
Apply for a small personal loan with the bank after you have saved a few hundred dollars in your bank account. The money you have deposited in your savings account will serve as the collateral for your loan. Use the loan as a way to rebuild your credit by making your loan payments on time and in full each month until you have fulfilled the terms of the loan.
Step 4
Spend the first six months after your bankruptcy demonstrating that you have learned from your mistakes. Make all your payments on time and put some money aside for emergencies, then apply for your first new credit card. Believe it or not, this is one of the best ways to recover from bankruptcy. You should be able to qualify for an unsecured credit card with a very small spending limit, usually $300 or less. If you are not approved, apply for a secured credit card to start.
Step 5
Use a credit card to make small purchases throughout the month. Pay off the balance before the due date each billing cycle to avoid interest charges while building better credit. Keep only one or two credit cards with a low spending limit.
Step 6
Maintain a steady job with a regular income. If you are gainfully employed, it will be easier to keep a low debt to income ratio, which can help you to improve your credit. Lenders are also more likely to work with you if you have been with the same employer for an extended period of time.
Tips and Warnings
- Wait six months or more after bankruptcy before applying for new credit. Use the time in the meanwhile to work on developing better credit habits. Secured credit cards are one way to reestablish credit after bankruptcy. A cash deposit is required as collateral, and in most cases, will be the credit line for the account.
- After a while, you will begin to get offers for credit cards with higher credit limits, however, avoid the temptation of falling into the credit card trap again. Throw out any pre-approval offers you receive for other cards.
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