Take These 11 Steps to Rebuild Your Credit After Bankruptcy

Bankruptcy offers court-sanctioned relief from overwhelming debts. But that relief comes at the expense of your credit. A bankruptcy filing can drop your credit score by up to 200 points and stay on your credit reports for up to 10 years. Fortunately, you can help your score rebound by making timely loan payments, keeping your credit utilization low, and monitoring your credit reports. Tap these additional strategies to rebuild your credit after bankruptcy.  

1. Check Your Credit Reports

This starting point is key: You need to ensure that creditors have accurately reported the bankruptcy filing. Otherwise, your score could be unduly penalized.

“Debts should be marked as included in bankruptcy with zero balances,” said Ashley F. Morgan, a debt and bankruptcy lawyer in Virginia.

You can get free weekly credit reports from Equifax, Experian, and TransUnion, the three major credit bureaus, via AnnualCreditReport.com. You can also use a credit monitoring service to check and keep tabs on your credit reports.

2. Dispute Any Errors

You can dispute credit report errors by contacting the creditor that reported the inaccurate information. You can also file a formal dispute with the credit bureau. A reputable credit repair company can help with this process, though it will charge a fee for its services.

3. Monitor Your Credit Score

As you work to rebuild your credit, keep an eye on where you stand and how you’re progressing. Some banks, credit card issuers, and non-profit organizations offer free credit scores. Paid identity theft and credit monitoring services also often provide regular access to your credit score.

4. Ensure Timely Loan and Credit Card Payments

Payment history accounts for the biggest percentage of your credit score. On-time payments are great for your credit score, while late payments have a significant negative impact.

“I recommend keeping a track record of what bills you have and when they need to be paid and setting automatic alerts for yourself before the due dates, so you avoid late payments,” said Leslie H. Tayne, founder of Tayne Law Group, a debt resolution firm.

5. Keep Your Credit Utilization Rate Low 

Credit utilization refers to the amount you owe in relation to your credit limits. This is another major component of credit scores. The lower your credit utilization rate is, the better, though experts tend to agree that you should aim for utilization of 30% or below.

6. Become an Authorized User

Authorized users can use a credit card tied to someone else’s account, but are not responsible for paying the bills. The credit card activity will show up on both the primary account holder’s credit reports and also the authorized user’s—that means both positive and negative activity will be recorded. However, since the primary account holder assumes all the risk, they may only be willing to add you as an authorized user if you have a close relationship.

7. Leverage a Co-Signer

If you struggle to access credit post-bankruptcy, consider asking a close friend or family member to be a co-signer. Their good credit could help you qualify for new financing.  

Remember, the lender considers a co-signer liable for the outstanding debt, so any missteps you make during the repayment period will affect your co-signer’s credit—and could affect your relationship.

8. Apply for a Secured Credit Card

A secured credit card requires you to put down a security deposit that effectively serves as your credit limit.

It’s “typically the easiest credit card to get after bankruptcy and is a good way to put positive payment history on your credit,” Morgan said.

9. Get a Credit Builder Loan

Credit builder loans are a bit like reverse loans. They require you to make fixed monthly payments into a savings account, and the money becomes accessible at the end of the loan’s term. They don’t require good credit to get, and can help you re-establish a positive payment history.

They can also help you demonstrate your ability to manage different types of credit accounts, another factor of credit scores. Credit builder loans are installment loans, whereas credit cards are revolving credit lines of credit. Having each type on your credit reports gives you more credit diversity. 

10. Space Out Credit Inquiries 

Credit bureaus track your new credit applications—known as hard inquiries—and too many in a short period can hurt your credit score.

You can minimize the damage by spacing out hard inquiries. A good rule of thumb is to only apply for credit if you truly need it. But there are rate-shopping exceptions, which treat multiple applications for the same type of loan as one when they’re made within a 14- to 45-day window. This means you can check your terms with multiple lenders to shop around for the best loan rates without worrying about damaging your credit from many inquiries, as long as you do it within that window.

11. Work on Your Overall Financial Health

Improving your overall financial health can help you avoid missed loan payments or high debt levels in the long term.

“Having a percentage of your paycheck automatically deposited into a high-yield savings account is a great place to start,” Tayne said. “This way, consumers will have a safety net if financial hardship strikes again.”

The Bottom Line

Bankruptcy is increasing in the U.S. If you’re among the borrowers who sought legal relief from your outstanding debts, your credit score has likely taken a big hit. Start rebuilding by checking your credit reports for errors post-bankruptcy and monitoring your credit score. You can see improvements in as little as a year by maintaining a stellar payment history, keeping credit utilization low, and adding new lines of credit over time, like a secured credit card or authorized user account.