Three Tips For Improving Your Credit After Bankruptcy

When you file for bankruptcy, it is inevitable that your credit is going to take a hit. Bankruptcy is one of the most influential events on an individual's credit score. With a subpar credit score, it is much more difficult to obtain and utilize credit. When a lender does extend credit to those with poor histories, it is generally at a high interest rate or riddled with fees. Taking steps to effectively manage your credit after bankruptcy puts you on the right track to improving your finances.

1. Apply for a Secured Credit Card

A secured credit card is backed by a deposit that you cannot touch while the card is open. For example, if you deposit $300, you will have a credit line of $300. Using the card responsibly and making on-time payments is a simple way to begin the process of restoring your credit.

You should not use the entire amount of the available credit, as a high credit utilization ratio negatively affects your credit. Instead, make a small purchase, such as a tank of gas, and pay the entire amount when you receive your statement.

2. Have Patience

Both chapter 7 and chapter 13 bankruptcy cases stay on a credit report for seven to ten years, depending on a credit bureau's reporting policy. However, the impact of the bankruptcy on your credit lessens as time goes on. Once two to three years have passed from your bankruptcy filing date, the effects are significantly lessened. Assuming you have taken steps to rebuild your credit, you may be able to qualify for an automobile or home loan at a reasonable interest rate.

The events before and after the bankruptcy also affect your credit. Late payments and the closing of your credit cards all make your credit score head south. Fortunately, the negative influence of these events also lessens as time goes on.

3. Take Out a Loan

One of the factors that influences your credit is the type of debt that you have. Credit bureaus like to see a healthy mix of debt that includes both revolving credit (such as a credit card or line of credit) and installment credit accounts. Installment credit accounts are those that require a fixed payment each month, such as a car loan, student loan, or mortgage.

Having a significant down payment improves your chances of being approved for a car or home loan. You have immediate equity in your purchase, making you less risky in the eyes of a lender. Utilizing a creditworthy cosigner is another method to enhance your approval odds.

Fortunately, there is life for your credit history after bankruptcy. By using debt responsibly and letting time help heal the wounds, you can ameliorate your credit history so that you are once again eligible for favorable terms when you need to use debt in the future. When you have navigated the bankruptcy law process, it's time to start working toward a new future for your credit.