Rebuilding your credit after bankruptcy can seem like a daunting task at first. But remember that in two years, you can have a good credit score. The key is to start small and use credit responsibly. In no time, you will have a good enough record to qualify for low mortgage and car loan rates.
1. Start Rebuilding Credit Score with a Credit Card
After your bankruptcy has been discharged, apply for a credit card. That might seem like the last thing you would want to do. But, it is the only way you can rebuild your credit. Financing companies won’t punish you forever for a bankruptcy, but they need proof that you can handle credit.
Start with a secured card and use it. Make monthly payments. You may decide to pay off the entire balance or only a portion. Keep your account to 20% or less. Larger amounts can hurt your score.
2. Check Your Free Credit Report Online
After six months, check out your credit report. There are several places to get a free copy. With this information, you can check two things. First, you can see the good standing of your new credit card account. It should show payments paid on time. The longer you keep that account, the more it will improve your score.
The next thing to check is that all your old accounts have been properly closed after the bankruptcy. If they remain open, notify both the credit reporting agency and the creditor. Unresolved accounts will unnecessarily hurt your score.
You can also decide to include a letter explaining the circumstances of the bankruptcy. In some cases, this can improve the rates you qualify for.
3. Continue Applying for New Credit Over Time
After six months, open a new credit line. By this time you should be able to qualify for an unsecured card. Use this card and your first card. The same principles of good credit management apply. Keep balances small and make monthly payments.
In another six months, open a third account and use it. In 24 months, your credit should be in good standing and you will have many more credit options.
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Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.