How Can I Rebuild My Credit After Bankruptcy?

It’s no surprise that a bankruptcy can take a toll on your credit reports and scores. Furthermore, when you file for bankruptcy the unfortunate reality is that getting approved for new financing in the near future can prove to be difficult.

Yet the idea that you’re doomed to a lifetime of horrible credit after a bankruptcy is, thankfully, false. It’s possible to rebuild your credit after a bankruptcy, provided you know what to do.

The first thing you need to keep in mind after filing for bankruptcy is that time is your friend. Your credit scores will likely be hit the hardest whenever your bankruptcy initially shows up on your credit reports. As time passes, however, the negative impact will begin to lessen, little by little — as long as you don’t continue to have other, newer derogatory information added to your credit reports.

Not only does the negative impact of a bankruptcy lessen over time, your bankruptcy also has a credit reporting expiration date. The Fair Credit Reporting Act (FCRA) is the federal law that dictates how long negative information is allowed to stay on your credit reports. This means that the law requires the bankruptcy to be deleted from your credit reports at some point.

For a Chapter 13 bankruptcy, the FCRA states that the item must be deleted from your credit reports no later than seven years from the date of discharge, or 10 years from the date of filing — whichever occurs first.

For a Chapter 7 bankruptcy, the removal requirement is a little more straightforward. Chapter 7 bankruptcies must be removed from your credit reports no later than 10 years from the date of filing, according to the FCRA. So, most bankruptcies are removed from your credit reports around seven to 10 years from the date filed.

Rebuilding Your Credit

Now that you know that recovering from bankruptcy is going to take time, why not use that time to rebuild your credit and accelerate the process? Of course, qualifying for new credit soon after a bankruptcy can be a little tricky, but if you know where to start you can improve your odds of success.

1. Secured Credit Cards

Even after a bankruptcy, it’s often possible to qualify for a secured credit card. With a secured card you typically make a deposit with the issuing bank that’s equal to the credit limit you’re granted on the card. For example, a $300 deposit equals a $300 credit limit.

Keep in mind, of course, that you’ll need to manage your new secured credit card carefully for the account to help you with your goal of rebuilding credit. If you make late payments or over-utilize your account by maxing out the limit, your new secured card could potentially hurt your credit instead of helping it.

Related: What Is a Secured Credit Card?

2. Credit Builder Loans

Another great method of rebuilding credit is the credit builder loan. These small installment loans are generally issued by credit unions. However, unlike a traditional personal loan, the issuing credit union will hold the funds in a savings account for the borrower. Only after the final payment on the loan has been made will the funds plus any interest earned be released.

Since the actual funds are being held by the credit union, the risk in approving a credit builder loan is considerably lower for the lender. As a result, most applicants will be able to qualify for a credit builder loan, even with credit problems such as bankruptcy tarnishing their credit reports.

3. Authorized User Accounts

It’s often forgotten, but you can ask a loved one to add you as an authorized user on an existing credit card account. Assuming the account is in good standing, being added as an authorized user to another’s credit card could potentially be another great way to help you to rebuild better credit reports after a bankruptcy.

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John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

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