Declaring bankruptcy is a decision that not only impacts your finances but also the state of your credit score. While your score may decrease after financial hardship, there are practical and real ways to improve it and get back on a better financial path.
What Is a Credit Score?
Before you start taking steps to fix your credit score, it is important to know what the score is and why it’s so important to your financial future. When you apply for any type of credit – credit cards, car loans, mortgage or rental agreements, student loans – the financial agency first looks at your credit history to determine if they should lend to you or not. Many lenders use FICO scores as part of those decisions. If your FICO scores are in the mid 700′s or above, that generally means you have good credit and it shouldn’t be difficult for you to get approved, provided you meet lender’s other requirements.
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How Do I Improve My Credit Score?
It is important that you understand what happens when you file a bankruptcy. A bankruptcy can remain on your credit report for up to 10 years and there is a good chance your FICO score will be low until you have started rebuilding your credit. You can take the following steps to start raising your scores.
Now, here are 8 tips to improve your credit score after bankruptcy.
1. Review Your Credit Report
The first step is knowing where you are and where you need to go. The first thing you should do is obtain a copy of your credit reports and make sure there are no errors or inconsistencies. You can try Credit.com’s Free Credit Report Card for an overview of your credit standing and an explanation of how it’s broken down, and you can request one free copy of your credit report per year from Equifax, Experian and TransUnion at Annualcreditreport.com.
2. Pay Bills On Time
Your payment history makes up 35% of your credit score. One of the easiest ways to improve your score is to always make sure you pay bills on time.
Tip: Set up reminders on your calendar to pay bills every month by the due date. Many banks and creditors offer services that allow you to set up your payments electronically so you don’t forget.
3. Apply for Credit…Cautiously
If you didn’t keep a major credit card account open during your bankruptcy, it’s a good idea to get one after your bankruptcy has been discharged. You may have to start with a secured card, which requires that you place a security deposit with the issuer. Once you get the card, it’s perfectly fine to pay the bill off in full each month. You don’t have to carry balances on your credit cards to build good credit.
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4. Add a Loan Down the Road
Once you have gone a year or two post-bankruptcy, consider getting a car loan or line of credit. If it’s a car loan, buy a vehicle that is affordable and that you can pay off successfully. You may receive a higher interest rate to start. Shop around for the best rate, and keep in mind that once you have raised your credit scores, your next interest rate on a loan will likely be lower. 
5. Beware of Credit Repair Services
You may receive offers from credit repair services promising to help repair your credit. Make sure you thoroughly investigate these services before you use them. Their fees can be expensive. There are many ways you personally can rebuild your own financial future for no cost (compared to services that charge). In this case, DIY is often best.
6. Know Your Limits
Again, once you begin re-establishing credit, it is crucial to know the limits on your credit cards and to keep your balances well below them. You may have a very low limit due to your credit history. That’s okay. Use your cards sparingly and continue paying the bill on time.
7. Do Not Close Accounts
You may think you’re doing the right thing by closing lines of credit and swearing off all credit cards. This action does far more damage to your credit than you think. Closing accounts reduces the amount of credit you have available to you. This leads to lower credit scores. It’s best to keep the credit lines open. If you’re tempted to spend, cut up the card.
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The most important lesson to learn is to be patient. The road to bankruptcy did not happen overnight. And neither will the road to improving your credit. By following the guidelines above, the road to a better financial future and improved credit score is possible.
Image: kenteegardin, via Flickr
Britt Klontz Britt Klontz is a writer with TotalBankruptcy.com, a site that provides free bankruptcy evaluations, information about bankruptcy laws, and is a directory to help you find bankruptcy lawyers in your area. She is dedicated to helping you keep your finances in order.
{ 12 comments… add a comment }
I would like to know that if we file for bankruptcy, we will be able to keep our car, which has already been paid off.
We went through it a while back and they allowed us to keep our cars, two in fact. You do not have to lose your only mode of transport, the code does not require that you put yourself in hardship.
Consider carefully the type of bankruptcy you file as well. One sets up a payment plan to repay the a portion of the debts, that is the route we went. It turned out it was just appeasing our guilt, there was no advantage to it over wiping the debt out completely.
Good luck!
If your credit balance position get handicapped then it is the suitable time to get back your credit score to be improved, I would like to pick some of the valuable tips for a fair credit score position and to avoid bankruptcy.
Paying your bills is not the mantra to earn good scores in your credit report. Rather paying your bills much before you are marked a defaulter is the golden way to gain credit score.
Yes you can, But credit card score need to be good in the bankruptcy condition. There are other options available also, Hire a good layer to solve out this problem very soon.
I am agree with these points. I Follow these two points Do Not Close Accounts and Know your limits that.
My credit score went 125 points in a year. If I could do it, anyone can. I payt credit card twice a month, my car a week or 2 before is due
My credit score, sorry went up 200 points in a year. If I could do it, anyone can. I pay my credit card, twice a month or more. My car payment 2 weeks before is due.
Love the idea regarding this issue. Looking forward for more regarding this kind of issue.
Our credit score dropped by approx 100 points and while we actually paid our bills on time it got to a point where we knew it was no longer going to be that way so we had to file bk, hardest decision of my life and still not sure it was for the best. We now, 2 1/2 years later have 2 car loans and a line of credit but the score has not moved so I’m not buying into this credit score thing and making it better. We don’t have credit cards yet every website says to get a card, I don’t want a credit card, I like having to only rely on the cash I have and not interested in credit card at all. So, while my credit score doesn’t move at all ever and I pay bills on time including several student loans there still seems to be no great explanation on credit scores. Why?
Hi,
Very effective tips. I have low credit sore and I am going to use these tips to improve it. Thanks for sharing.
I disputed Experian’s credit report when they scheduled my Bankruptcy removal in March 2014. My BR was discharged March 2004. The other two agencies removed my BR after seven years. Experian will not do that.
Seven years for removal is the figure given for BR removal after the BR has been filed if paid off or discharged.
Can you clear this up for me