Rebuild Credit After Bankruptcy

May 27, 2014 by

US Bankruptcy CourtA Chapter 7 bankruptcy (that’s the one where all of your debts are “discharged” by the bankruptcy court—you no longer owe these debts) stays on your credit report for up to ten years. Unless you can pay cash for everything you buy during that decade, you need to start rebuilding your credit after a Chapter 7 bankruptcy is fully processed. But how do you do that with a bankruptcy on your record?

Credit Card Issuers Like the Recently Bankrupt

Many people who’ve recently emerged from bankruptcy are shocked and even repulsed to find their mailbox clogged with unsecured credit card offers. Why do credit card issuers like recently bankrupt consumers?

  • They’ve got no debt.
  • They may file a Chapter 7 bankruptcy and have debts discharged only once every eight years. In a weird way that may make them a lower risk to the credit card issuer than someone with an average or worse credit rating who’s never filed bankruptcy.
  • A big majority of people who’ve filed bankruptcy do so only once.

Now, you’re going to pay through the nose with respect to APR and fees for an unsecured credit card after bankruptcy, but don’t get one unless you can and will pay it off in full every month, minimizing the card’s cost. And the credit limit will likely be low. But it’s a start on rebuilding credit, if you use the card responsibly.

But don’t just accept a random credit card offer that shows up in your mailbox. Try‘s “bad credit” search function to review card offers and find the best one for you.

Getting Bank Credit After Bankruptcy

You also want to re-establish credit with a bank or credit union after bankruptcy.

You may be able to get a “secured” credit card through your bank. How’s the card secured? You deposit $500 with the bank, and the card has a $500 credit limit. If you default on the credit card, your bank deposit will be at risk.

Another possibility you can ask your bank about is a credit loan. You deposit $500 and the bank lends you $1,000. You can’t access your $500 deposit unless the loan balance is less than $500.

After responsible use of a secured credit card or credit loan for 6-24 months, you may be able to get limited unsecured credit at your bank.

Most Important: PAY IT OFF!

The last thing you want is for your efforts to rebuild credit only reconfirm that you’re a bad credit risk! Don’t accumulate during a billing cycle more than half of the card’s limit, and don’t get any credit card unless you can and will pay off the balance in full each month! And be sure to meet all the terms of any credit you are allowed.

Are You Working to Rebuild Credit?

Are you trying to improve your credit score after a bankruptcy or other credit debacle? What’s worked for you? Please share any tips!

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