Five Steps to Rebuild Credit After Bankruptcy

With the recent economic downturns over the past several years, bankruptcies have become more common.  There are a number of different options for filling bankruptcy, if you have questions, you should contact an attorney.  The purpose of this article is to provide you some simple actionable steps to help with the reestablishment of your credit after your bankruptcy has been discharged.  The following link from the United States Courts website states over 1.2 million consumers filed bankruptcy in 2012. http://www.uscourts.gov/Statistics/BankruptcyStatistics/12-month-period-ending-december.aspx.  For individuals looking to rebuild after this event, below you will find some simple and actionable steps to help.  

1.        CASH is king:  With a bankruptcy discharged, most creditors will be unwilling to grant new credit.  When you have a nest egg, no matter the size, you can leverage you savings to help.  The obvious statement which follows is “if I had cash, I wouldn’t have to file bankruptcy to start with.”  That’s true, but hopefully while in bankruptcy you’ve been able to alleviate some of the debts restricting your cash flow.  If that’s the case, you may have to start by simply purchasing items using your nest egg.  This will help from repeating the cycle of debt accumulation via credit.

2.        Secured Personal Loans:  One of the components of your credit score is the mix of types of credit.  The variety of credit items, installment loans (mortgage, student loans, etc.), revolving debt (credit cards) comprise 10% of your FICO.  http://www.myfico.com/crediteducation/WhatsInYourScore.aspx a good mix of credit is essential.  Visit your local bank or credit union, speak with one of the bankers and explain your situation.  Ask them for a savings secured loan, agree to the terms of repayment, and then cash the check for the new loan the same day.  You now have a new installment loan reporting, there’s no way for you to default, if you can’t make the payments, the loans secured by your savings account, and you are safeguarding future credit mishaps.

3.        Secured Credit Cards:  The same strategy as the installment loan, with one exception.  When you secure a credit card, which is a great idea, the money used to secure the card will not be immediately available.  You will either have to setup a bank draft or send a check or money order, in most cases.  Also, keep in mind, it takes time for the credit card company to process your request, setup the account, and send the card via regular or express mail.  So if you are using money that’s not necessarily from your nest egg, keep this in mind.

4.        Pay your bills on time:  Timeliness of payments is 35% of your FICO score, follow the link above more information.  This one is self-explanatory and there’s not more to say.

5.        Be patient:  Following the steps above you will see some improvements; however, it will take time for your score to rise significantly.  With the initiation of multiple credit options, a couple of installment loans, a credit card or two, you will see improvements.  The thing to keep in mind, it’s a rebuilding process.  Take the steps and you will begin to see results, and it may happen much quicker than you expect.