How to Rebuild Your Credit After Bankruptcy

You’ve found the financial relief you were looking for and now you’re trying to figure out how to rebuild your credit after bankruptcy.

But since you’re well aware that bankruptcy filings linger on your credit reports for 10 years, you worry that your dinged up credit score will haunt you for years to come. Even worse, you fear there’s little to no chance of qualifying for a credit card or loan product in the near future if the need arises.

The good news is despite the lengthy reporting timelines for bankruptcies, the impact on your credit score will start to diminish far before the 10-year mark. And you’ll give your credit score an even better chance of improving sooner than later if you manage new credit responsibly as the positive information will minimize the negative impact of the negative information.

Read on to learn how to rebuild your credit after bankruptcy:

Is It Possible to Have a Bankruptcy Removed From Your Credit Report?

At this point, you may be asking yourself if there’s some miraculous way to have the bankruptcy removed from your credit report sooner than later so you’ll have decent credit. You always have the option to file disputes with the credit bureaus and hope that they rule in on your favor.

While it’s not totally impossible to get the result you’re wishing for, it’s best that you hire a credit repair company to analyze your situation and help you determine if this is the best course of action. Furthermore, they can handle the dispute process for you from start to finish and address other negative items in your credit report that appeared prior to the bankruptcy.

Is It Difficult to Qualify for Financing After a Bankruptcy?

Thanks to the growing market of subprime lenders, it’s now easier than ever to qualify for financing after bankruptcy. But just because a company says yes doesn’t necessarily mean you should bite the bait.

A better idea: devise a plan of action to improve your credit score and wait until you start to see that three-digit number rise before applying for new credit. Start by retrieving a free copy of your credit report from each of the credit bureaus – Equifax, Experian, and TransUnion – from AnnualCreditReport.com. Review all the contents and highlight or circle any inaccurate information. File disputes right away to ensure that your report is updated and your credit score is a reflection of accurate data. If you’re unsure of where to start with the dispute process, here’s a handy guide to help you out.

Also, consider getting a credit-builder loan to speed up the credit rebuilding process. A loan from Self Lender can help you start improving your credit score in just a few months without making a hefty securing deposit. You can also check with the local credit union or community bank to explore credit building loan products that may be available to you. But keep in mind that they usually require a hefty deposit that’s equivalent to the loan amount and help in a savings account while you make payments.

And if you can’t wait until you start to see improvements, shop around with multiple lenders until you identify the best rates and refinance the loan product as soon as you’re able to qualify for a better rate.

How to Qualify for a Credit Card After Bankruptcy

You have the option to choose from an unsecured or secured credit card product. The latter may be easier to qualify for but requires a deposit that’s equivalent to the credit limit to protect the interests of the creditor. But if your credit score is high enough to qualify for an unsecured credit card, it may be a better fit if the fees are lower.

Wondering how you’ll qualify with a fresh bankruptcy on your credit report? Select lenders offer credit card products that are geared towards consumers with credit woes, including bankruptcies, foreclosures, and charge-offs. Even better, most lenders have a pre-qualification tool on their website that allows you to see if you qualify for a credit card by entering a few details about yourself. And there’s no impact to your credit score.

To derive the greatest benefit from obtaining a credit card after bankruptcy, be sure to make timely payments as they account for 35 percent of your credit score and can quickly help you re-establish positive payment history. Also, try to keep the balance at or below 30 percent of the credit limit. Finally, confirm that the credit card issuer reports payment activity to the credit bureaus.

How to Qualify for an Auto Loan After Bankruptcy

Securing an auto loan after bankruptcy can be a bit more challenging than qualifying for a credit card. But it’s not impossible, and there are a few key actions you can take to restore the prospective lender’s trust in you and make you a viable candidate:

  • Make a hefty down payment. Doing so lowers the loan amount so you can borrow less, which poses a lower risk to the lender.
  • Establish positive payment history before applying. Make timely payments on all your existing debts for at least six months post-bankruptcy to show the lender that you’ve turned a new leaf.
  • Get a co-signer. As long as they good credit and a steady source of income, the lender may be more willing to approve you for a loan since the co-signer is responsible for making loan payments if you default.
  • Consider loan options from local financial institutions. The dealer will beg and plead with you to finance in-house, but you may be able to score a better deal with your local bank or credit union.

Because of the recent bankruptcy filing, you should expect a higher interest rate than normal. However, you have the option to refinance for a more competitive rate, which should lower your payment substantially, when your credit score improves.

How to Qualify for a Mortgage After Bankruptcy

In most instances, you’ll need to wait for at least two years following a bankruptcy to qualify for a mortgage loan. And depending on the lender and type of loan you’re seeking, it may be an even longer waiting period.

But once that two-year period has lapsed, your best bet for qualifying for a mortgage after bankruptcy is a Federal Housing Administration (FHA) Loan. You can qualify with a credit score as low as 500 with a 10 percent down payment, but a credit score of 580 gives you the ability to pay as little as 3.5 percent down.

USDA and VA loans are also viable government-backed loan options with less stringent credit criteria for consumers looking to buy in rural areas or who are current or retired service members, respectively.

You may qualify for a conventional loan if your credit score has reached 620. But as mentioned earlier, there may be a longer waiting period of up to four years. So you could always take the FHA, USDA, or VA loan now and refinance later.

How to Avoid Bankruptcy in the Future

Do you recall what caused your bankruptcy in the first place? If so, you’ll definitely want to take the proper measures to prevent history from repeating itself. The cause may have been out of your control, despite your diligent efforts to stay afloat and keep your financial house in order to the best of your abilities.

But if it was the result of compulsive overspending and excessive debt, you definitely want to develop a realistic spending plan and stick to it. That way, you’ll be telling your money where to go and not the other way around. Furthermore, you’ll have a concrete roadmap to help you achieve your financial goals.

And if you decide to apply for a credit card or loan product, only borrow what you can afford to pay back. This ensures you’ll be able to make timely payments and rebuild your reputation with creditors. Otherwise, the balances will start to pile up and you’ll do even more damage to your credit score with late payments and a sky-high debt utilization ratio.

You should also establish and start contributing to a cushion so you won’t have to resort to credit cards or loan products at the first sign of financial trouble. Having a cushion will also give you peace of mind knowing that you have something to fall back on.

Most importantly, you should consider seeing a professional therapist if your financial woes that led to bankruptcy resulted from an underlying emotional or mental health issue. The last thing you need to do is get overwhelmed and result in excessive retail therapy to cope, which will only land you right back in the hot seat with your creditors.

The Bottom Line

It’s possible to rebuild your credit after bankruptcy so you can secure credit cards and loan products. But it’s important to remember when starting from scratch to responsibly manage your debt obligations so you won’t find yourself right back in the same position.

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