How to Start Building Credit After Bankruptcy

When you have to file for bankruptcy, it shows as a negative item on your credit report, and it stays on your credit report for several years. With bankruptcy on your credit report, you’ll probably have difficulty getting approved for new credit at reasonable rates for some time, but that doesn’t mean you’ll never be able to rebuild your credit. Here’s what you need to know about how to start building credit after bankruptcy.

Apply for a Secured Credit Card

One of the best places to start rebuilding your credit is with a secured credit card. For this type of card, you’ll need to deposit money into a savings account. Your credit limit is likely to be equal to the amount you’ve deposited. The creditor holds the money in the savings account as security for charges you put on the credit card, or in some cases, debits the account as you make purchases with the card.  

Since they are holding onto your money, approving a secured credit card isn’t risky for the creditor and you won’t need good credit to be approved. In time, a secured credit card may convert to an unsecured credit card. For a secured credit card to help you rebuild your credit, the creditor must report your payment history to the credit bureau.

Consider a Credit Builder Loan

Another way to start rebuilding credit after bankruptcy is with a credit builder loan. This is like a loan in reverse. Instead of receiving loan proceeds and making payments over time to pay it back, you make fixed payments to the creditor and at the end of the loan term, you receive the loan amount. This process gives you an opportunity to prove that you’re able to make on-time payments.

Other Credit Options

The impact of filing bankruptcy lessens over time. After some time has passed, you may want to apply for a credit card through a retail store. Approval standards for store credit cards are often more lenient than those of other types of cards. Keep in mind you’ll only be able to use the card to make purchases in their stores, and they’re likely to charge a high-interest rate on any balance you carry. As another option, if you have a loved one with good credit, they may be willing to cosign for a loan or add you as an authorized user on one of their credit cards — both quick ways to help you establish a positive credit history. 

Take Care of Your Credit

As you start to rebuild your credit, make sure you make all of your payments on time without fail. Your payment history is one of the most important factors in your credit score. Keep an eye on your credit report and make sure there are not any errors. Chapter 13 bankruptcy stays on your credit report for seven years and Chapter 7 stays on for ten years, but once this time has passed, make sure it’s removed from your credit report.

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