So you’ve been through bankruptcy. You’re probably feeling a mixture of emotions; perhaps you are relieved to get a fresh start, but at the same time are frustrated that you have to start over all over again to restore your credit. It will take time to process all the emotions from the setbacks you’ve been through. But while you do, there are some specific steps you can take to rebuild your credit and financial life.
The process of rebuilding your credit after bankruptcy is twofold. You must:
- Deal with the negative information on your credit reports and,
- Build positive new credit references
Here are detailed, step-by-step instructions for each:
1. Deal With Negative Information
Though you may be dreading it, you need to get a copy of your credit reports from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. You can order a free copy once a year from AnnualCreditReport.com.
You will not get free credit scores with your credit reports however.
If you are serious about trying to get your credit back on track, though, it’s a good idea to subscribe to a credit monitoring service that will also provide you with credit scores so you can follow your progress.
Tip: If you are only going to get your free annual reports, order them at least 60 days after your discharge date. If you are using a monitoring service, you can order them immediately after your bankruptcy is completed (discharged).
There are two main areas to focus on when you review your credit reports:
1. Accounts. Each account included in your bankruptcy may be listed as “charged off” (which means the debt was written off by the lender), or as “included in bankruptcy.” Any debt that was discharged in your bankruptcy should list a zero balance. Dispute any that are incorrect. Negative information about these individual accounts can be reported for seven years.
2. Public record information. You’ll see a section on your credit report which includes “public record” items reported by the courts. Your bankruptcy proceeding will likely be listed here. By law, all personal bankruptcies can be reported for as long as ten years from the filing date. However, credit reporting agencies will remove Chapter 13 bankruptcies (bankruptcies where some or all debt is repaid) from reports seven years after the filing date.
Always look over your credit report carefully for any inconsistent or inaccurate information and be sure to dispute any mistakes.
Tip: Keep copies of your credit reports for your records in case you have trouble getting inaccurate items removed.
Removing accurate, but negative, information is not easy to do, no matter what you may have heard or read online. Credit repair clinics that make those kinds of promises are either helping consumers negotiate with creditors or collectors to remove positive information in exchange for payment (which doesn’t apply here, since most or all of your debts have been discharged) or by disputing accurate information in the hope that it will not be confirmed and will be removed as a result.
Don’t waste a lot of time or energy worrying about the negative information you can’t do much about. Instead, focus on what you can do, and that brings us to the next step:
2. Build Positive Credit References
Recent information has a major impact on your credit scores. That means you can start to rebuild your credit as soon as your bankruptcy is completed. You do this by making sure you have current positive credit references that can help boost your credit scores.
Debts you paid on time throughout your bankruptcy – such as a car loan, mortgage or student loans, for example – help. But you will also want at least one open major credit card listed on your credit reports. If you don’t have any, consider a secured card.
A secured card is a major credit card that requires a security deposit. The deposit will be held in a bank account as long as the secured card is open. If you manage your account properly, you will get your deposit back when you close the account.
Note that a secured card is different from a prepaid card. A prepaid card is a type of debit card. You load money on the account and then use the money you’ve loaded. These cards are not reported to the major credit reporting agencies, so they don’t help build your credit scores.
Watch Out for Scams!
After filing for bankruptcy, you will probably be deluged with offers of credit and financial services promising to help you rebuild your financial life. Some of these are genuine, but many are scams. Here are some to watch out for:
- Advance Fee Loan Scams: Millions of consumers have been tricked into paying high fees up front for “guaranteed loans” that never materialized. Credit.com’s forums are filled with stories of consumers with bad credit who lost hundreds or thousands of dollars to these criminals. Learn more about loan scams here.
- New Credit Files Scams: Some companies promise to help you establish a brand new credit rating. “File segregation” is the official name of this scam. The company will instruct you to build a new credit history by using an EIN (employer identification number) rather than a social security number. Beware, this is illegal. In a worse case scenario, it can land you in prison or result in heavy fines.
- Credit Repair Scams: Some firms promise to remove all negative information – including your bankruptcy – from your credit report. There are thousands of complaints to the FTC every year about these scams. While there are some situations where professional help can be useful, there are few reputable credit repair companies out there who can really deliver on what they promise you. Here’s free advice to get your credit back on track.
Bankruptcy filings have reached epidemic proportions. To understand the true size of this ever growing issue, check out Credit.com’s One Bankruptcy Every 15 Seconds an Infographic.
Tip icon courtesy of Jacob Hnri 6, via Wikimedia Commons