How to Rebuild Your Credit After Bankruptcy

Bankruptcies are on the rise. Bankruptcy clients typically focus on getting the bankruptcy over with, and the relief it provides. However, it is important to remember that when all is said and done, a bankruptcy filer will be helping his future financial position immensely by beginning to work on rebuilding his credit.

A Chapter 7 bankruptcy will stay on the filer’s credit report for 10 years. All debts discharged in the bankruptcy will be listed as “discharged in chapter 7 bankruptcy.” No debt amounts or other details will be listed on the credit report for these debts.

Chapter 13 bankruptcies take longer to remove from one’s credit report. The actual bankruptcy itself stays on for only seven years. However, this seven-year period does not officially begin until the debtor completes a Chapter 13 payment plan. Following through on this plan usually takes about five years. So if you have filed a Chapter 13 bankruptcy, it takes about 12 years to have it removed from your credit report.

It might seem like a long time before a bankruptcy will be cleared from your credit record, but it is important to immediately begin trying to rebuild your credit score. One of the first things you can do is apply for a secured credit card. Secured credit cards have a yearly fee and also require that the card holder make a deposit equal to the amount of the credit card’s limit.

While this might seem like a hassle and an expense and maybe even a little overwhelming to obtain, it is important to note that a secured credit card appears on a credit report like any other credit report. As the months go by, those on-time payments and lack of a credit card balance will reflect positively on your credit report. It may take as little as six months to see an improvement. Usually a non-secured credit card can be obtained about a year after filing for bankruptcy. This also will help improve a credit score. In addition, if the filer can qualify to purchase a vehicle or furniture and continue to make on-time payments, the credit score will continue to improve.

Within two or three years of filing for bankruptcy, a filer who has taken steps to improve credit, can typically expect to see their credit score increase up to as high as 680. As you continue to make on-time payments, keep from holding balances on credit cards and begin to pay off debts, this score will continue to increase.

Remember that credit reporting agencies focus on recent credit history, within the last three to five years. This works to the advantage of someone who has filed for bankruptcy and is working hard to improve the credit score. By establishing strong, positive recent credit, that bankruptcy will have less of an effect on the credit score. Also, be sure to check your credit report yearly and check for any errors. If you find errors, contact the credit reporting agency and make sure the errors are removed from your credit report.

If a bankruptcy filer also has a foreclosure on his credit, it will make it more difficult to get another mortgage. A foreclosure will stay on one’s credit for seven years. However, the older it is, the less likely it will affect one’s ability to obtain a mortgage. A good mortgage broker can typically shop many banks to find a lender that is willing to offer a mortgage to one with a prior foreclosure on his credit. Often, a bankruptcy filer who also has a foreclosure on his credit will qualify for a mortgage within three or four years of the date of the foreclosure, as long as it has been approximately two years or more after filing bankruptcy.