Rebuilding Credit after Bankruptcy

Rebuilding credit after Chapter 7 liquidation bankruptcy is not impossible. It may take some time and you will initially pay higher interest rates for credit, but there are some steps you can take that may soon put you back in the good graces of creditors.

1) Get copies of your credit reports

Start by getting a copy of your credit report from all three credit reporting bureaus.  Examine the reports for accuracy. Check to be sure there is a notation “included in BK” next to any debt that was discharged at the close of the bankruptcy proceeding.

2) Apply for a secured credit card

As soon as your debts are discharged, you can apply for a secured credit card. This means you deposit your own money, usually between $200 and $500 with a lender. When you use the secured card, the amount you charge is taken out of your deposit. There are a few important considerations to be aware of when choosing a secured credit card.

• Application fees may be high. Be sure the fees are refundable if your application is denied.
• Most banks will give you a credit line that is 100 percent of your deposit. Others may limit you to 50 percent of your deposit.
• Check to see if you are paid interest on the amount of the deposit you have not used for credit. Most lenders pay interest. Some do not.
• Be sure the card is with a company that regularly reports to the credit reporting bureaus.
• Choose a lender that will increase your credit limit after a period of a good credit history without requiring an additional security deposit. Some lenders will do this within one year, others after two years, and some not at all.
• Use the card for small purchases, such as gasoline or groceries, and pay the bill in full on time.

Do not confuse a secured card with a prepaid one. A secured card will report your payment history to the credit reporting bureaus. A prepaid card will not and will do nothing to help you restore your credit.

3) If you need a different car, take out a car loan

Although you will pay a higher interest rate for a car loan that you would without the bankruptcy on your record, dealerships do not have the same criteria for car loans as banks do for other types of loans. If you can afford the monthly payment, and scrupulously make your payments on time, this may be a good option for you.  The interest rate should be no more than 3 points higher than a conventional rate would be without the bankruptcy.