The minute after you file bankruptcy, it is time to start rebuilding your credit. If you file Chapter 7 bankruptcy, you pretty much wipe the slate clean. In other words, you wipe all of your debt off the table with the exception of federal loans. Now it’s time to rebuild your credit back up because at this point, it looks like you don’t have any credit. This isn’t something that is going to happen overnight – it takes time, sometimes up to a few years.
Start With a Secured Credit Card
Secured credit cards are sometimes the easiest credit cards to obtain. Your credit line is equal to the money you put down on the card. For example, if you have a $500 credit line, you have to put down a $500 deposit. That money sits untouched unless you default on your credit card. If you do, the credit card company takes the payment from your deposit.
You don’t want to keep this type of credit card for long, though, as it usually has high-interest rates and you may pay an annual fee. You want it for the purpose of starting to rebuild your credit. Once you get a secured credit card, use it. Charge things you would buy anyway and then pay the bill in full. After six months or so, it should help your credit score increase enough that you can apply for an unsecured credit card.
Apply for a Department Store Credit Card
Is there a department store you shop at regularly? Maybe you buy your clothes, linens, or other necessities at a specific store. Apply for a credit card at that store. Their guidelines are usually less stringent than the general credit cards that you can use anywhere.
Using the same strategy as the secured credit card, charge things on this credit card. Again, only charge what you would normally buy and what you can pay off in full. The idea isn’t to carry a balance on the credit card, but rather to show that you can charge items and pay the balance off in full. In other words, it shows financial responsibility.
Ask to be an Authorized User on Credit Cards
Do you have close family members or friends that have good credit? Would they be willing to let you be an authorized user on their credit card? Before you agree to do this, make sure that the credit card company will report the credit on the authorized user’s credit. Some do and some don’t, so make sure that you know ahead of time.
Of course, this arrangement must be made carefully. You don’t want to take advantage of your friend or family member’s generosity. If you charge something, make sure you can pay it off right away. If you can’t pay it in full, at least pay a good portion of the bill down and then pay the full balance within a few months.
Ask for a Cosigner
If you don’t want to be an authorized user on someone else’s card, consider asking for a cosigner. This is usually a family member that has good credit and is willing to help you. The cosigner isn’t responsible for the bill unless you default. Again, this is an arrangement that you should use with caution. If you aren’t 100% sure that you will be able to keep up with the bills, don’t risk ruining your loved one’s credit. If you do default on the credit card, it hurts the cosigner’s credit and it also becomes their liability.
Using a cosigner the right way, though, can help you get the credit card that you need to boost your credit report. When used right, it can be a great way to get your credit back where it needs to be.
Use Credit Carefully
No matter which method you choose, make sure you use your credit wisely. Don’t just start charging things because you have the credit available. Instead, make sure you have the money to pay the bills. Also, try to keep any charges that you make at less than 30% of your total available credit. This will help your credit score too as the utilization rate is a big part of your credit score.
Building your credit after bankruptcy isn’t hard, but it is time-consuming. Like we said, it’s not going to happen overnight. You have to give it time and use several of the above methods to help your credit score increase the fastest.