Home > Personal Loans > How to Get a Loan After Bankruptcy

Comments 5 Comments

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:

Image: Wavebreak Media

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • 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.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team