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A bankruptcy may feel like the worst thing in the world when it comes to your credit. After all, you can be stuck with one on your credit report for up to 10 years from the date you filed. But that doesn’t mean you have to spend a decade completely shut out of the credit marketplace.

In fact, it’s possible build a halfway decent credit score while you wait for the bankruptcy to age off of your report.

“If you do all the right things, it’s fair to say within 3 to 5 years you can have if not a 700 score, then very close to it,” said Barry Paperno, a credit scoring expert who worked at FICO for many years and now writes for SpeakingofCredit.com.

Of course, doing all the right things can be easier said than done, especially if bad habits led to credit troubles in the first place. Here are some steps you can take to get yourself on the right track and increase the odds of getting a new loan with a bankruptcy on your report.

1. Check Your Credit Reports

Yes, a bankruptcy is going to damage your credit score. But, “assuming you don’t get into more trouble after the bankruptcy, your score is actually rebounding from the time you file,” Paperno said. And having all those debts discharged may make you more creditworthy than before the bankruptcy hit your credit file. (Your credit-to-debt ratio, for instance, will improve since you no longer owe on the accounts involved in filing.)

But, in order to begin the healing process, you’ll need to make sure the bankruptcy has been reported correctly to the three major credit reporting agencies. That’s why you’ll want to pull copies of your credit report after the bankruptcy is complete, said Martin Lynch, director of education for Cambridge Credit Counseling Corp.

Make sure all of the accounts involved in your bankruptcy “have a zero balance and are labeled as discharged so the prospective lender knows you have additional income to spend now,” he said. These notations could make it easier to get a new line of credit that will help you further rebuild your scores. (You can go here to find out how to pull your credit reports for free each year at AnnualCreditReport.com and here to learn what how to dispute any errors you may find on them.)

2. Build a Positive Payment History

Rebuilding after bankruptcy is all about accentuating the positive.

The most important thing you can do to recover as quickly as possible is to pay your bills on time, every time after the bankruptcy,” Rod Griffin, director of public education for credit bureau Experian, said in an email. “Building a positive payment history will help offset the bankruptcy over time.”

To speed up the process, Griffin suggested keeping one account open after the bankruptcy, ideally with a zero balance.

“Make small purchases and pay the balance in full each month to establish a record of positive, on-time payments,” he said.

3. Shop for (Re-)Starter Credit

If you don’t have any accounts open following your filing, consider applying for a secured credit card or credit-builder loan at your local bank or credit union, Lynch said. These types of credit are designed specifically to help people with bad credit fix their scores, so they’ll be easier to get. Plus, it’ll be harder for you to get into too much trouble with the account. (Secured credit cards, for instance, require a cash collateral deposit which serves as a credit line for the account.)

But don’t go too crazy in your search for new credit.

“You’ve just declared bankruptcy, so lenders will wonder why you suddenly are trying to rapidly gain access to a lot of new credit,” Griffin said. “The question is, are you making the same mistakes again that will land you right back in bankruptcy in the future. Just one new account with a low limit is sufficient to start rebuilding a positive credit history. In time, the accounts included in bankruptcy and the bankruptcy filing will be removed from your credit report leaving the positive payment history you’ve build in the intervening years.”

You can track your progress as you move to rebuild by viewing your two free credit scores each month on Credit.com.

More on Credit Reports & Credit Scores:

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  • Jeremy Womack

    It’s easy to get discouraged when you have gone through a bankruptcy. This article is spot on, you don’t need to wait to start rebuilding your credit. One thing this article doesn’t touch on, and I believe deserves a mention, is positive rent reporting. There is a new trend coming up that allows you to build credit by simply paying your rent on time. This type of program allows you to immediately start building credit, without taking on additional debt to do so. If you haven’t heard of rent reporting, I strongly recommend you looking into it!!

  • Hazy Meerkat

    Re: #3. If I am not mistaken, a lending institution like bank or credit union cannot give you any kind of loan while you are in bankruptcy without the permission or the bankruptcy court. Without a “hardship” reason for the loan, it’s not likely it will be approved. Please correct me if I’m wrong.

  • Matt

    Well I don’t know. It took 4 years before anyone would give me a chance. Then when I finally did find someone. I got so railed on a car loan from a big so called reputable dealership. 3 years with two years to go on a 10 year old car. (When I bought it they told me it was a 3 year loan. Year later found out it was 5 years. 20K for a 9K car that they told me I was buying for 10K. Yep, I’m a trusting dummy) I doubt that the car will be running by the time I pay it off. Or in fact able to go the next two years an keep the payments up. I do not make the money i use to when I bought it. As of right now I have never been late. My credit is ok. But it killed me to get it and I am now at risk to losing it again. I read this site allot for advice. Did some things I wish I had not. I was worried when I thought I had a 3 year loan. Life changes too much, but I thought I could make it. But when i found out it was a 5 year loan. I knew I was screwed. Again, those life changes. when I bought the car. I made 50K that year. This past year. I am lucky if I made 19K. 2 more years to go. It ain’t gonna happen.
    I know of 2 other people that did a bankruptcy and they decided to have a life without credit. and they are ghosts now. And doing allot better then I am and not stressed out.
    I did not write this for sour grapes. Just if you are in this situation of just getting your bankruptcy. You need to know the other stories too. They loan companies, car dealerships , credit card co. hunt down people like us and take advantage way more then try to help us. If I was to do it over again. I would have become a ghost like the others people I know.

    • Hazy Meerkat

      Matt, if you have been making paments on time for three years and your credit is ok, you might be able to refinance and get a lower monthly payment. And being a ghost isn’t so bad. I did it for many years until all the bad credit went off of my credit report and I could start all over again.

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