Rebuilding Your Credit After Bankruptcy

A lot of people put off bankruptcy because they’re afraid of what it’ll do to their credit. Here’s the truth: if you’re behind on payments and buried in debt, your credit is probably already hurting. Bankruptcy gives you a clean place to start rebuilding, and most people see real progress within a year or two.

How long bankruptcy stays on your report

A Chapter 7 bankruptcy stays on your credit report for up to ten years from the filing date. A Chapter 13 stays for up to seven. That sounds like forever, but its effect fades over time, especially as you add good history on top of it.

Step 1: Check your credit reports

A few weeks after your discharge, pull your reports from all three bureaus: Equifax, Experian, and TransUnion. You can get them free at AnnualCreditReport.com.

Look for:

• Debts that were discharged but still show a balance owed. They should read “discharged in bankruptcy” with a zero balance
• Accounts you don’t recognize
• Wrong dates or duplicate entries

If you find mistakes, dispute them with the bureau in writing. Keep a copy of your discharge order handy, since it’s your proof.

Step 2: Start small with new credit

You need some active credit to rebuild a score. Good starting points:

• A secured credit card, where you put down a deposit that becomes your limit
• A credit-builder loan from a local credit union, where you make payments into a savings account and get the money at the end
• Becoming an authorized user on a family member’s card with a long, clean history

Start with one. Applying for a lot of credit at once can hurt more than help.

Step 3: Pay on time, every time

Payment history is the biggest single factor in your score. Set up automatic payments for at least the minimum so you never miss a due date. One late payment can set you back months.

Step 4: Keep balances low

Try to use less than 30 percent of your available credit, and less is better. If your secured card has a $500 limit, aim to keep the balance under $150 and pay it in full each month.

Step 5: Build a small cushion

Many people end up in bankruptcy after one emergency they couldn’t cover. Even a small savings account, built up a little each paycheck, makes it less likely you’ll need to lean on credit when the car breaks down.

Step 6: Be patient

Scores often start climbing within months of discharge. Many people qualify for a car loan within a year or two, and for a mortgage after a few years of good history. The key is steady, boring, on-time payments.

Watch out for scams

After a bankruptcy, you may get offers promising to “fix” your credit fast for a fee. Nobody can legally remove accurate information from your report. You can do everything a credit repair company can do on your own, for free.

Questions about bankruptcy?

If you’re weighing bankruptcy, start with Chapter 7 vs. Chapter 13: Which Bankruptcy Fits? and our bankruptcy and debt page. Or call Gray & Palmer in Bangor at (207) 945-5502. Gray & Palmer is a debt relief agency. We help people file for relief under the Bankruptcy Code.