Guiding You Toward A Brighter Financial Future

3 tips for rebuilding your credit after bankruptcy

On Behalf of | Nov 21, 2023 | Bankruptcy

People who are considering a personal bankruptcy filing often have a lot of reservations. They may worry about the stigma associated with bankruptcy and also the financial implications of filing. Typically, a personal bankruptcy leads to the closure of revolving lines of credit and a significant drop in someone’s credit score.

Given that the average household relies on credit for everything from groceries and unusual expenses to purchasing vehicles, people are often worried about how the damage to their credit could affect their standard of living and future opportunities. Thankfully, bankruptcy provides someone with an opportunity to eliminate certain debts, end abusive collection activity and regain control over their finances.

Filers who follow the right steps can usually rebuild their credit to the same point it was at before their filing or even better than that within a few years of finishing the process. To rebuild one’s credit post-bankruptcy, a few strategies are more effective than others.

Get new credit as soon as possible

The initial reaction of someone overwhelmed by debt is often to avoid any debt in the future through whatever means are possible. However, this approach often puts people at a disadvantage, as their credit scores will not improve until they demonstrate that they can appropriately use personal credit. Credit cards are often available to someone within a few weeks or months of their discharge. Getting a secured credit card and paying the balance off in full every month can help someone build a positive credit record after bankruptcy.

Use credit monitoring services

There are both paid and free services that allow people to regularly check their credit scores. For example, the credit bureaus typically provide someone with a single free credit report each year. There are also several reputable websites and apps that offer similar services. Identifying inaccurate information and having it removed from a credit report will help someone boost their score quickly.

Pursue a variety of credit opportunities

Credit cards are often the first option made available to someone after bankruptcy, but they are far from the only form of consumer credit people may require. Personal loans, vehicle financing and other forms of credit are also important. Lenders want to see that people can responsibly use a variety of different types of credit. Maintaining the same lines of credit for years is also important, as the overall age of someone’s accounts will also influence their credit score.

Those who are cautious and responsible about credit use following bankruptcy can often qualify for more valuable lines of credit and better terms within a few years of their discharge. Ultimately, exercising responsible money management and having a plan to rebuild one’s credit can diminish the harm caused by a personal bankruptcy filing.