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REPAIR YOUR POST-BANKRUPTCY CREDIT IN 5 STEPS

2012 February 16 by

As we covered in the February 2011 Bankruptcy Law Professionals in Bankruptcy Myth #1, filing for bankruptcy does not necessarily hurt your credit. The bankruptcy will be reported on your credit file for up to 10 years. Bankruptcy gets rid of or manages your debt, so it should be considered the first step in rebuilding your credit. Here are five steps you should take to start repairing your credit after filing for bankruptcy.

1. REVIEW YOUR CREDIT REPORT

If you don’t have a recent copy of your credit report, get one from a reputable online source such as Annual Credit Report – it should be free once a year. If you see any errors, work on disputing that information directly with the companies. And make sure any debt that was part of your bankruptcy case is designated with a “BK” notation. Remember that you must exercise some patience here. It can take several years for your credit slate to be completely clean. You didn’t become bankrupt overnight, so you can’t recover it from it that quickly either.

2. APPLY FOR NEW LINES OF CREDIT

It’s time to get some positive credit activity going on your credit report to show that you are responsible and are ready to pay bills on time. You likely won’t get great offers and will have to pay higher interest rates, but you’ll use the cards sparingly. Consider making one small purchase a month, like a tank of gas, then pay it off with each bill. Don’t ever max them out, as your credit score goes up or down based on your ratio of outstanding credit to available credit.

You might start with your bank – ask if they have a “collateral” card program, which means you put money into an account up front and card purchases are taken out of that. It’s low-risk for the bank, but can help you improve your credit score.

3. GET A SMALL LOAN

Talk to your bank or credit union about getting a small loan, such as $500. These loans do have high interest rates, but they offer you an opportunity to pay them back in monthly installments, which looks good to creditors. Be very diligent about making payments on time. Consider setting up automatic payments that come directly out of your checking accounts at a set time each month.

4. PROTECT YOUR IDENTITY

This might seem like an odd step to take, but you cannot afford to have anything else major go wrong with your finances. An identity theft could be detrimental to your credit recovery. eHow Money has a helpful article on comparing identity protection programs, which is an excellent place to start.

5. SET A BUDGET

It probably goes without saying, but a major part of recovering from a bankruptcy is to avoid getting right back into old ways. Look into one of the free online services that help you set budgets and goals, like Mint.com. After some set-up on your part, Mint will automatically update with real-time bank account and credit card information, so you can see exactly where you’re spending. You can enter monthly budgets and it will send you alerts if you’re getting too high in a category. Mint also helps you set up Goals, such as paying off credit cards, buying a car, or paying off a loan.

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