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UPDATE: Article Updated by Brian Acton 4/25/18

Bankruptcy deals a major blow to your credit and hurts your ability to qualify for credit cards and loans. Depending on the type, your bankruptcy may stay on your credit report for up to ten years. But that doesn’t mean you can’t rebuild your credit and access certain loans in the meantime.

“Filing bankruptcy doesn’t necessarily mean you’re now shut off from the credit marketplace,” said Ben Gold, President of QuickBridge, a financial services firm that serves small-to-medium businesses. “In fact, it’s possible to significantly build up your credit score as you wait for the bankruptcy to be removed from your reports.”

Here are some steps you can take to get yourself on the right track and qualify for a loan after bankruptcy.

1.Check Your Credit Reports

If you don’t get yourself into further hot water, you can immediately start rebuilding your credit after a bankruptcy.

To begin the healing process, you need to make sure the bankruptcy has been reported correctly to the three major credit bureaus. You should pull your credit reports and make sure that all bankruptcy-related accounts have been zeroed out and labeled as discharged (you can request free copies of your credit reports once a year).

If your credit reports don’t reflect a discharged bankruptcy, you will need to contact the credit bureaus and have that information corrected before you try to open any new lines of credit. You may need to submit documentation that verifies your debts have been discharged.

2. Use a Credit Card (Wisely)

There are a few ways you can use credit cards to build credit following a bankruptcy. Secured credit cards are one of the best tools for rebuilding credit.

“A secured credit card is backed by a deposit you make, which then becomes the credit line for that account and can be used as collateral if you default on your payments,” said Gold. “A secured credit card is typically easier to obtain than other types of loans or credit and can be used to rebuild your credit.”

You can also enlist the help of others. A trusted friend or family member can add you as an authorized user to their card, letting you piggyback off their good credit. Alternatively, they could co-sign your credit card application.

“Ask a friend or family member if they would be willing to co-sign with you on a low-balance credit card, such as a gas card, department store card, or Costco card … keep in mind that your co-signer is taking a financial risk and will be responsible to make payments if you fail to do so,” said Gold.

Remember, credit cards can only help your credit score if you pay them on time and maintain a low balance.

3. Open a Loan to Rebuild

Certain loan types that can help you build credit are attainable, even after bankruptcy.

Some credit unions and banks offer credit-builder loans for borrowers with poor credit. These loans let you borrow a small amount that is put into a CD or savings account. You make fixed monthly payments until the loan is paid off, and then you can access the funds.

Similarly, your bank or credit union may offer passbook or CD loans, which let you use funds you already have in a savings or CD account to secure a loan. Once you pay the loan off, you will regain access to those funds.

Car loans are another option. “Auto loans are generally easier to qualify for than other loans. But if you are coming off a bankruptcy, your interest rate will likely be high,” said Gold. “If you want to keep your monthly payment low, you’ll need to stick to a lower-priced vehicle to compensate for the higher interest rate.”

4. Establish a Positive Payment History

Payment history is the single most important contributor to your credit score. You must make all your payments on time to rebuild your credit after bankruptcy. That goes for credit cards, loans, utilities, and any other debts you hold.

A late payment on your credit report could tank your score even further, so avoid that scenario at all costs.

5. Don’t Move Too Fast

Once you’ve spent some time building credit, you can start to shop for the loans you need, but this should be a slow process.

“Don’t apply for too many lines of credit at once, as this will result in multiple credit inquiries, which could further lower your credit score,” said Gold. Too many applications at once will also raise red flags with potential lenders.

You can build up decent credit over time, even with a bankruptcy on your credit report. After seven to ten years, the bankruptcy will disappear, and you will be financially free and clear (provided you managed your finances wisely in the meantime).

You can track your progress as you move to rebuild by viewing your two free credit scores every 14 days on Credit.com.

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated every 14 days.

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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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