Restoring credit after bankruptcy
Surprisingly, credit repair can be quite simple after bankruptcy. The beauty of bankruptcy is that going through one means your debts are virtually wiped out, in many cases. There are many options for getting credit after filing for personal bankruptcy, but these options may look a little different than what you’re used to.
After personal bankruptcy
When you file for personal bankruptcy, you choose either a chapter 7 or a chapter 13. A chapter 7 is known as a liquidation bankruptcy, and it is a short process where your trustee in bankruptcy is responsible for selling your property not exempted in order to repay your creditors. A Chapter 13 gives you time to try to pay off your debts, you offer a payment plan that you can stick to with the help of your trustee.
Either way, a bankruptcy drastically lowers your credit score and may force you to seek out subprime lenders if you need to borrow again. A bankruptcy stays on your credit reports for seven or 10 years, depending on which chapter you file. Its impact on your score decreases with each year, however.
3 steps to repair your credit after bankruptcy
The key to repairing your credit after bankruptcy is to take advantage of your clean slate and start building good credit habits. There are several practices you can adopt to increase your credit.
These four habits might help:
- Avoid using credit cards. If you don’t have the money to make the purchase, don’t take out the plastic! Getting into bad spending habits could lead you straight to bankruptcy. It is recommended that you only buy on credit what you can afford in cash. That way, if you’re using the card to earn points or save miles, you can. But, set aside the money for the purchase and pay the entire bill, not just the minimum payment.
- Stay up to date on your bills. Another step to building credit and not falling back into bankruptcy patterns is to stay on top of your bills. This means not having to choose what you pay for and being smart about how you pay them. Don’t let small bills slip through the cracks.
- Pay your bills on time, every time. This is one of the biggest keys to repairing your credit after bankruptcy. Payment history makes up 35% of your credit score, so paying all your bills on time can really boost your credit score.
- Be patient. Remember that time heals all wounds, and that goes for nicks to your credit score too. Going through bankruptcy, the damage decreases with each passing year. If you stay on top of your bills, avoid collections, and avoid defaults, your credit reports will thank you.
Unfortunately, passive credit improvement is not the fastest route you can take. In order to build your credit after bankruptcy, you may need to take action to see real results.
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3 actions that can create credit
Credit repair after bankruptcy is possible, and there are several ways to do it. Since you’re likely facing a lower credit score than before you filed, there may be a few extra steps needed to find the credit you’re looking for.
If you need to start rebuilding your credit score, try these three options:
- Get a secure credit card. A secured credit card is a card you make an initial deposit on which becomes your limit. If you use a secured credit card responsibly, you usually get your initial deposit back once the balance is paid off. If you don’t manage your credit and start missing payments, your deposit can be used to cover bills. Secured credit cards give you the ability to build credit by making on-time payments and adding a revolving line of credit to your credit reports. It also helps to keep a good mix of credit cards and installment loans.
- Get a credit builder loan. A credit builder loan is similar in concept to a secured credit card. You make deposits into an account and build your credit by making payments over a set period of time, usually around one to two years. Once you complete the loan, you get the money. It is reported as an installment loan.
- Build your credit with an auto loan. A bad credit auto loan is a great way to repair your credit after bankruptcy. By applying to a subprime lender through a specialist finance broker, your credit doesn’t come between you and the vehicle you need. Every payment on time improves your credit score and you add an installment loan to your credit reports. Additionally, auto loans tend to be long-term – typically four years or more – giving you a wonderful opportunity to build your credit over a long period of time.
Improve your credit with a car loan
If you’re ready to start repairing your credit after your bankruptcy discharge, you can start here at Auto Express Credit. We want to make it easier for you to find the right lender to fund your next car loan by connecting you with a local dealer who can help.
We’ve been connecting people to dealerships in their area for over 20 years, and we want to do the same for you. To start your next car loan now, simply fill out our fast, free, no-obligation car loan application form.