How Do I Get Credit Again After Filing for Bankruptcy?

The following is provided for informational purposes only and it not intended as credit repair.

Sometimes circumstances are such that it’s just not possible to ever successfully repay your debt. That’s why bankruptcy exists. It gives consumers the opportunity to wipe the slate clean and start over. It can be a difficult process, but for many people it’s the best choice.

Although bankruptcy does offer a chance at a fresh start, it can be a bumpy road to full recovery. That’s because, even though your debts go away, the fact that you filed for bankruptcy will remain a factor in your ability to open new credit and loan accounts for seven to ten years (depending on which variety of bankruptcy you filed).

And bankruptcy itself can put a serious hurt on your credit score. If your score is good (in the 700 range) it can drop by at least 200 points.

So are you expected to go a decade without using credit? No, you’re not. It just takes a little work and some patience and you’ll find yourself eligible for credit sooner than you might think.

Why is it important to re-establish your credit?

First off, if you’ve had a difficult time with credit and debt, you may not be so inclined to start using credit cards again following a bankruptcy. That’s understandable, but the truth of the matter is that it can be hard to navigate without credit – particularly if you’re ever faced with an unexpected setback and don’t have the necessary funds saved up.

Even if you don’t want to ever rely on credit again, it’s a good idea to start using credit once more as a means of positively building your credit history and credit score. Because – unfortunately – you have to use credit to build good credit. The trick is to use it sparingly and as part of your budget. Only make purchases with credit that you can immediately pay back.

Of course, that requires you to actually have a credit card to start using strategically.

How to begin rebuilding your credit

If you’ve filed for bankruptcy, have bad credit thanks to missed payments, or don’t have a credit profile because you’ve never really used credit before, you’re most likely going to have a hard time finding a lender willing to extend you credit. That’s because to them you’re too risky. You haven’t shown them that you can be relied on to repay any money they might lend to you.

Your best bet in a situation like this is to open a secured credit card. This is a credit card that requires a deposit to open. The deposit, which also serves as your credit limit, is usually somewhere in the neighborhood of $200 to $500. That money secures the account for the lender. This way there’s no risk to them, because if you borrow money and fail to pay it back, they can recoup that money from your deposit. Otherwise, you use the credit card as you normally would – making purchases and paying back those purchases.

After some time (usually six months to a year), if you’ve used the account responsibly and made all of your required payments on time, the account converts into a regular credit card account and your deposit is returned to you. This is a great way to help rebuild your credit profile and practice using credit responsibly.

Meanwhile, stick to the basics of building strong credit:

• Always make payments on time
• Keep your credit utilization low
• Don't try to open lots of new accounts in a short period of time

Credit history improves over time

Most negative marks in your credit report last seven years (with the notable exception of Chapter 7 bankruptcy, which stays on your report for ten years). Even after your debts have been cleared through bankruptcy, the negative marks associated with those accounts (delinquencies, charge-offs, etc.) will remain for seven years.

The good news is that the impact of these negative marks will gradually lessen over time. Even your bankruptcy will become less of a factor in your credit score after a few years. That’s why you need to be patient, and continue to use credit smartly and strategically. Over time you’ll find that your score has rebounded and you’ll be eligible for credit cards and loans with much more favorable terms.

So stick with it, and if you need any help or advice on managing money in the wake of a bankruptcy, MMI offers free financial counseling 24/7, online and over the phone. We can help you find ways to reduce your expenses and create a spending plan that suits your unique situation.