Filing for bankruptcy can feel like the end of the world for your credit score, but it doesn't have to be. Although it can take a while to repair your credit after a bankruptcy, it's not as difficult as you might think. Using careful planning and smart spending, you can improve your credit score even when it's hit rock bottom. Here are some simple but effective tips to help you improve your credit score after bankruptcy.
Monitor your credit report and fix any errors
After your bankruptcy is complete, get an updated copy of your credit report. Even if you no longer have to repay them, your creditors will almost certainly remain listed on your credit report for some time after the bankruptcy has been approved. Each creditor's account should indicate whether your debt with them was included in the bankruptcy.
If a creditor's entry doesn't show that they were included in the bankruptcy, but they should be, contact the credit bureau that you obtained the credit report from and give them a copy of your bankruptcy schedule A. This should include every creditor included in the bankruptcy filing. Each account included in the bankruptcy filing should show up as a zero balance on your post-bankruptcy credit report.
Keep on top of any remaining debts
If you have agreed to keep some debts after you file for bankruptcy, make sure you pay them back on time. If your credit comes through a bankruptcy in "fair" or "not bad" condition, the last thing you want to do is wreck it with late or missed payments on any outstanding accounts.
Borrow the smart way
You may be scared to have a credit card or loan after a bankruptcy, especially if these types of debts caused you to lose control of your finances in the first place. However, when used carefully, borrowed money can be your credit score's best friend. Start by applying for either a secured credit card or secured personal loan. Both of these lend you money that is secured by money you place in a savings account. If you default on your repayments, the lender can take the money you've used as a security in order to get paid.
These types of secured accounts are also great for building credit if you don't have any credit history. They're a way for you to improve your credit score without causing any risk for the lenders. Once you've established some history of repaying these accounts back on time or in full, your lender may offer you a traditional credit card or loan at a fair interest rate. Just be sure you don't fall into the same bad borrowing habits that caused your bankruptcy in the first place, and you'll soon have a strong credit score to show for it.
Buy a home
You may think that buying a home after a bankruptcy would be nearly impossible, but that's not always true. If you are careful with your money, repay any outstanding debts on time, and use secured credit wisely, you can obtain a mortgage in as little as 18–24 months after filing for bankruptcy, and a mortgage can make your credit score look great. Be warned, your credit score may initially go down slightly as you take on a large debt like a mortgage. However, with regular, on-time payments it will rebound and grow stronger.
Start small by learning to live on cash as much as possible until you can responsibly manage a secure credit card or personal loan, and earn your lenders' trust through responsible borrowing. Before you know it, you'll have a healthy credit score and a newfound respect for borrowing money.