If you filed for bankruptcy, you probably think your credit is ruined forever. That’s a myth that many people believe and it’s one of the reasons many people avoid it. Luckily, if you had to file for bankruptcy, your financial life isn’t over. In fact, you have a fresh start that can help you climb right back up to the top.
It is possible to rebuild your credit after bankruptcy; you just have to be diligent in your efforts. Follow the below steps to get yourself started.
Apply for a Secured Credit Card
Right after your bankruptcy discharge, most lenders will want nothing to do with you. Even unsecured credit card companies will turn their backs on you. This isn’t forever, though. If you start with an unsecured credit card, you’ll set yourself up for success.
When you apply for an unsecured credit card, you put down a deposit. Your credit line is then equal to that amount. Let’s say you put down $500. You would then have a $500 credit line. If you defaulted on your bill, the credit card company would just take the $500 deposit. They aren’t out any money, but you would be without a credit line.
If you are granted an unsecured credit card, use it wisely. Charge things you would normally pay for anyway, but then pay them off right away. This shows the credit bureaus that you are responsible with your finances. You charge things, but then don’t keep a balance.
Apply for a Secured Credit Card
Once you have the secured credit card for six to 12 months, apply for an unsecured credit card. Some of the easiest credit cards to get are department store specific cards. They usually have low qualifying requirements, making it easy to get even one year after your bankruptcy.
Again, use the credit line wisely. You want to use it to show financial responsibility, but you don’t want to overdo it. In fact, your credit usage is a large part of your credit score, so keep it minimal. A good rule of thumb is to not spend more than 30% of your available credit line. Of course, you should pay the balance off each month as well. If you can’t pay it off completely, at least pay a good amount at one time.
Mix in an Installment Loan
Because you don’t want your credit to be all revolving credit, you need to stick an installment loan in there somewhere. It can be a small personal loan (unsecured loan) or a car loan, for example. The installment loan will have minimum required payments each month. Make those payments on time and you’ll knock your balance down while showing that you are financially responsible.
The credit bureaus like a good mix of installment revolving credit, so make sure you mix it up as much as you can. If you have a debt load that is revolving credit heavy, it can bring your score down more than you’d like.
Become an Authorized User
If you can’t find a credit card company or bank that will give you a loan or credit card after bankruptcy, consider asking a family member if you can be an authorized user on their card. You only want this if the credit card company reports authorized users to the credit bureau. The cardholder can find out from the credit card company if this is something that they do.
Make sure that you have an agreement with the cardholder on how the card is used and/or paid. This way there aren’t anything unpleasant between the two of you; plus your credit gets helped along the way.
Take it Slow
Your credit score isn’t going to improve overnight. It will take time. Take the above steps slowly, making sure that you can handle the debts you take on. The last thing you want is to default on the debt when you are trying to build your credit. Slow and steady is the best way to get your credit score where you want it.
Building your credit after bankruptcy is a process you must take step by step. If you rush things, you’ll end up with a lower score than you would like. Let each type of credit get established as part of your credit history and boost your credit score before you start the next step. This methodical way will help your credit score improve the most.