Three Easy Steps To Rebuilding Credit After Bankruptcy

August 6, 2010

There are many misconceptions about the possibility of obtaining credit after bankruptcy.  The truth is that improving your credit score takes time and vigilance.  If you are willing to commit your attention to rebuilding your credit, your score will improve dramatically and quickly by following three easy steps. 

First, immediately after your case closes (usually soon after you receive your discharge), obtain your credit reports from the three largest credit bureaus: Experian, Equifax, and TransUnion.  You can obtain an absolutely free credit report from each of these companies by visiting this site: https://www.annualcreditreport.com 

Review your credit reports for errors.  All debts discharged by your bankruptcy should be listed as “Discharged in Bankruptcy” with a “Zero Balance.” There should be no activity reported on these accounts after the date you file bankruptcy.  Each credit bureau is required to provide assistance in correcting errors on your credit report.  Once the credit bureau has corrected the erroneous information it will send you an updated report. 

Second, obtain new credit.  Many debtors are reluctant to take this step either out of fear of rejection or fear of abusing available credit.  The only way to improve your credit score is to demonstrate a responsible use of credit over time.  Approximately 1/3 of your score is based on your payment history; 1/3 is your available credit; and 1/3 is various items like types of credit and length of credit history. Obtaining new credit is necessary to improve your credit score after a bankruptcy.   

Many debtors are amazed at receiving credit card offers in the mail just after they receive the bankruptcy discharge order.  Some of these offers carry very high interest and fees, so select your new credit card account wisely.  If you do not already have an installment loan, like a car loan or home loan, you should consider obtaining a secured loan from your local bank.  This loan is secured by a deposit held by the lender.  For instance, you deposit $500 in a savings account or CD, and the bank loans you $500.  If you decide to arrange a secured loan, make sure that the bank will report your monthly payments to the credit bureaus. 

Third, make your payments on time!  Bankruptcy is a serious negative mark on your credit report, but it stops all other negative reports.  Lenders place considerable weight on how you have handled your credit accounts since your bankruptcy.  One 30 day late entry on your credit report can significantly harm your credit score when coupled with a bankruptcy.  Safeguard your credit by ensuring your bills are paid on time. 

Rebuilding your credit is not difficult, but it takes time and vigilance.  Fixing errors on your credit report, obtaining new credit, and dealing with your creditors in a responsible manner are the three steps on the path to improving your credit score.  Make the most of your fresh start by taking these steps to improve your credit score.

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