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How to Establish or Rebuild Credit After Bankruptcy

written by: Nicky LaMarco•edited by: Michele McDonough•updated: 4/9/2010

Bankruptcy. It’s a scary word that holds a tremendous amount of weight no matter how stable the economy is in which you find yourself living. Yet, if you break it down, bankruptcy isn’t an admission of failure, just a legal document saying you got in over your head.

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    A Clean Slate

    photo 9122 20091028 Bankruptcy remains on your credit report for seven to ten years. Any time you wish to buy anything on credit, your report will be analyzed more closely but don’t fret. It’s more like you are on financial probation, not prison! Your first step after declaring bankruptcy is to look at this as a clean slate, a chance to do your credit over, and develop a game plan. Under federal law. you are allowed one free credit report per year. You should analyze this copy of your credit report once per year with a fine-tooth comb.

    This may seem tedious, but it is vital to your credit’s health. You are your credit’s own doctor and you must diagnose any problems. If there are any discrepancies contact the generator of the report immediately to fix the problems — this may better your score.

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    Secured Credit Card

    There are a few options to establish or rebuild your credit after bankruptcy. Your first option is a secured credit card. You must have a savings account that can be attached to this card, and what you have in savings determines what kind of credit line you can get. If you become delinquent on your payments, the credit card company simply draws from your savings account. A good secured credit card company will report your payments to the major U.S. credit bureaus and this will raise your score. Remember that these often carry an annual fee, but the long-term benefits may be well worth it.

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    Certificate of Deposit

    Another option is to buy a certificate of deposit, more commonly known as a CD. It’s offered by banks and credit unions and is a time-based savings account, and usually possesses fixed terms and interest rates. The CD is held until the time limit (and they vary) is up when you can withdraw the money without penalty. A CD proves you have a certain amount of money to your credit report and prevents you from touching it, thus saving you money and establishing or rebuilding credit after bankruptcy.

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    Go Credit Free

    A third option, and one that seems fairly extreme in today’s world where we wouldn’t dream of carrying our driver’s license without our debit card next to it, is to go completely credit-free. This means paying for everything in cash or by check and can be fairly inconvenient in the case of buying online or purchasing airline tickets over the phone. If bankruptcy is a chance to wipe the slate clean, some people prefer to keep it clean by forgoing credit altogether. This method isn’t necessarily recommended because after the bankruptcy is no longer on record, no credit almost seems worse than poor credit. However, this depends on what you can handle.

    It’s important to remember that bankruptcy is not the end of the world. There are plenty of methods to rebuild your credit and, with it, your life.

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    Resources

    Dough Roller - http://www.doughroller.net/credit/establish-credit-bankruptcy/

    Credit Cards.com - http://www.creditcards.com/credit-card-news/regaining-credit-after-bankruptcy-1265.php

    Los Angeles Bankruptcy Attorney - http://los-angeles-bankruptcy.net/credit-after-bankruptcy.htm

    Total Bankruptcy - http://www.totalbankruptcy.com/life-after-bankruptcy/credit/rebuild-your-credit.aspx

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    Image Credit

    Image: Francesco Marino / FreeDigitalPhotos.net