Individuals who have filed bankruptcy often find themselves wondering how they can rebuild their credit after such a devastating blow. Compounding the situation, these individuals have probably already suffered severe credit damage before filing for bankruptcy protecting, putting a good credit rating even further out of reach. With some patience and knowledge, though, bankruptcy filers can restore their credit rating by performing a few financial tasks.
Get a Credit Card
Getting a credit card as a way to restore a credit rating may seem almost counter-intuitive, but it can be an excellent way to demonstrate financial responsibility. Many financial institutions are willing to provide credit cards to bankruptcy filers, as the inability to file bankruptcy again for seven years—far longer than the legal process of collections—renders the debtor a low risk for bad debt. Once a debtor obtains a credit card after going through bankruptcy, it is critical to comply with all credit card requirements, including making payments on time. If possible, paying the full balance every month will help improve the borrower’s credit rating while also avoiding expensive interest charges.
Get a Car Loan
Effective management of revolving credit, like credit cards, demonstrates that a post-bankruptcy borrower is capable of managing small amounts of debt, but some lenders look for proof that the borrower can make timely payments over a longer period of time. Obtaining an installment loan, and paying it on time, can be just the proof that mortgage and other lenders want to see. Some installment loans, like unsecured personal loans and mortgages, can be very difficult to obtain after bankruptcy. Car dealers, however, often underwrite their own loans and have a number of programs for dealing with “problem credit” borrowers. Eager to close a deal and sell a car, car dealers are often a primary source of financing for borrowers who have experienced bankruptcy. Make the car payments on time, and the positive report to the credit bureau will go a long way toward rebuilding credit.
Monitor Credit Reports
Although bankruptcy should clear negative entries from a filer’s credit report, collections and judgment entries are sometimes overlooked. In addition, the positive credit marks resulting from the steps above can be quickly negated by creditors attempting to collect on old debt (although the federal Fair Credit Reporting Act expressly prohibits this action, some unscrupulous debt collectors may try to claim an old debt as new and renew collection efforts). To facilitate the monitoring of personal credit files, the government makes one credit report from each of the three reporting bureaus available free of charge each year. Request these files through the official request site, AnnualCreditReport.com, and carefully review the credit report from each credit bureau. If anything seems out of place—pre-bankruptcy debt “re-aged” as new debt, for example—file a dispute with the credit bureau and request that the erroneous entry be removed.