How to Restore Credit After Bankruptcy

Most people believe that a bankruptcy filing remains on their credit report, and it's near impossible to get a loan. Fortunately, if you take the necessary steps to rebuild your credit, you can qualify for loans relatively quickly after filing for bankruptcy. The key is to demonstrate responsibility with credit immediately after your bankruptcy case is closed.

Difficulty: Moderate

Instructions

1. Address the reason you had to file for bankruptcy. Before you can restore your credit, you have to protect it from what damaged it. Whether it's a spending compulsion, lack of insurance, bad saving habits or some other reason, you'll have a better shot at improving your credit if you face and resolve these issues.

2. Make sure your credit report is accurate. Errors can occur on your credit report after bankruptcy because so many of your open accounts are affected by the filing. Scrutinize your report and inform the credit bureaus of any mistakes to make sure you are starting off on the right foot.

3. Restore your credit by obtaining a secured credit card that reports to the credit bureaus. Immediately after a bankruptcy, it can be nearly impossible to obtain an unsecured credit card, but you'll need a revolving credit line in order to build your credit rating. With a secured credit card, you deposit several hundred dollars with a bank and receive a credit limit equal to the amount you deposited.

4. Get an installment loan you can afford. Home, auto and student loans repaid on time can really help your credit--although they can be hard to get after bankruptcy. Be prepared to have to pay high interest rates until your credit improves, at which time you could try to refinance.

5. Pay off any credit card debts in full each month to show potential creditors your spending and repayment habits have changed. Never get loans you aren't completely sure you can repay on time, or you could be back in bankruptcy court in the near future.

Tips & Warnings

• Use no more than a third of the open credit, even on a secured credit card, if you wish to rebuild your credit rating.
• Don't use cash. You have to have credit in order to build credit. You may think that it's wise to only use cash so that you never overspend again, but unless you demonstrate that you can be trusted with credit, you will remain a high risk and your credit score will remain low.
• Don't get any secured credit cards that charge an application fee or a high annual fee. Just because your credit is temporarily bad doesn't mean you should allow lenders to take advantage of you. Shop around.