Bankruptcy is a legal process that allows you to either eliminate your debts or make a reasonable plan to pay them without dealing with harassment from creditors. While filing for bankruptcy helps relieve you from the burden of your debts and reorganize your financial life, it can be detrimental to your credit score. The higher your score, the more complex the blow you may receive from bankruptcy. After the bankruptcy, banks will not want to deal with you, and acquiring another loan may be close to impossible.

Fortunately, having your credit score lowered is not the end of life. There are ways to work towards building it in the right direction. Depending on the type of bankruptcy you file, the bankruptcy can remain on your credit report for up to ten years. However, with the guidance of a skilled bankruptcy attorney, your credit score can rebound long before ten years. The following are some of the ways through which you can rebuild your credit after bankruptcy:

Monitor your Credit Reports

A credit report is a record of your personal credit history. Often, the credit bureaus will compile your credit report by utilizing information obtained from your public records and your creditors. A creditor will review your borrowing and repayment history before granting you credit. Information in your credit report is divided into the following sections:

  • Personal information. Under the personal information section, your name, address, and social security number are listed. Additionally, details about your past and present employment are included.
  • Credit amounts. This section will find information on your current and current credit accounts, loans, and credit limits. If you are late on payment of loans or you are in default, the details will be listed in this section.
  • Public record information. This section has information on tax liens and judgments for cases brought by creditors and bankruptcies.
  • Inquiries. The section on inquiries will have details about any company or entity that has requested to view your credit report within the last month.

If you want to build your credit after bankruptcy, you must obtain and go through your credit report to ensure accuracy. You can obtain the credit report by requesting a free copy from the credit bureau.

Although the credit bureaus have liability for posting accurate information on your credit report, you are responsible for ensuring that the report is accurate. At first glance, the report may seem okay, but it is wise to dig deeper. The credit bureaus receive data and information from millions of sources every month. Therefore, mistakes may be inevitable. On receiving your credit report, you need to go through it thoroughly to ensure that there is no wrong information that can affect your ability to rebuild your credit.

However, you will need to differentiate negative information from wrong information. When you begin the journey of building your score back, all the negative information could be neutralized. Some of the steps that could help you do this include:

  • Correct inaccurate information. If you find any erroneous information in your credit report, you should contact the bureau with an explanation. This ensures that the real reason for the negativity will be included in future reports.
  • Keep your active accounts open and verify the closing of any account you requested to be closed. If there are no annual fees, you should keep your old accounts open. If you have asked for some accounts to be closed, you must ensure that the action was taken.
  • Request that positive information is reported. Sometimes, local creditors fail to send your credit information to the bureaus. If the information is positive, you may miss out on a boost for your credit.
  • Always inform your creditors about any changes in your address. When you notify creditors about the address change, any letters or information mailed will reach you. This helps avoid late payments due to a lack of knowledge.
  • Review your credit report regularly. As you build your credit back up following a bankruptcy, you can ensure that nothing pushes you back by reviewing the report regularly.

Avoid Further Default on Loans

Not all debts are wiped out by bankruptcy. When you file for bankruptcy under Chapter 13, you will be allowed to make a repayment plan where you can cover your debts. In addition, some debts cannot be discharged by bankruptcy, including child support, alimony, and student loans. If this is the case, you must continue to pay your debts. If you make a plan with your creditors, it is essential to follow through. This helps you avoid lawsuits and builds your credit after the hit by bankruptcy.

Be an Authorized User on Another Person’s Credit Card

Becoming an authorizing user on another person’s credit account can be a great strategy to build your credit from scratch or bounce back from financial mistakes like bankruptcy. Being an authorized user means having a credit card in your name attached to another person’s credit account. Since you will not be a primary holder of the account, you will not pay the charges on the card.

 In this case, you can use the card to purchase any item, but you cannot alter the information on the card. Being an authorized user differs from a joint account in that with the joint account, you apply for the account alongside the other person. Becoming an authorized user in another person’s account is relatively easy. This process begins when the account owner, who could be a friend or family member, contacts the credit company with the request. The account owner will then provide your personal information and wait for approval via email.

When you seek to become an authorized user on another person’s account, you must ensure that the other person has a good credit score and is free from a negative repayment history. Having your friend or loved one add you as an authorized user to their old account could be an excellent boost for your score.

It is essential to understand that if the information from the account does not appear in your report, you may fail to notice any changes in your credit. Therefore, you need to ensure that the account holder requests the company to add you.

If a friend or loved one agrees to add you into their account, you have limited liability to their debts. If the account owner makes late payments and you feel it could affect your chances of building your credit, you can ask to be removed as an authorized user.

Credit Builder Loan

A credit builder loan is more of a savings account than a loan, and they help build our credit after a bankruptcy. Community banks or credit unions offer credit builder loans to help young people build credit and for older people to repair credit damaged by bankruptcy or loan defaults. You will take out a small installment loan backed up by your savings with this type of loan.

Like a regular loan, you will pay your monthly installment, and on completion, the money in the account belongs to you, and the creditor will report success to the credit bureau. Credit builder loans aim to demonstrate that you are trustworthy and capable of paying back your creditors. This helps to break the predatory cycle of lending.

Every time you ask for a loan and pay it successfully, you need to ensure that your creditor relays this information to credit reporting agencies. Credit builder loans are divided into two main categories:

  • Pure credit builder loan. Pure credit loans are used to build your credit score and savings account. In this case, your lender will put the loan in a frozen account until you pay the loan. For this type of loan, you will not need a deposit. Such a strategy helps build savings. Adding to your creditworthiness will improve your credit report and help you in your journey to neutralize the negativity caused by bankruptcy.
  • Share secured loans. For this type of loan, you can use your savings account as collateral for the loan. Your lender will then freeze your savings account, and every time you make a payment, an equal share of the savings account will be unfrozen. You can use this type of loan to build your credit mix, which is a significant factor in building your credit score. Utilizing a share-secured loan can add up to ten points, making a difference between good and fair credit ratings.

Online lenders, banks, credit unions, and non-profit organizations offer a credit builder loan.

Consider a Retail or Secured Credit Card

While bankruptcy hurts your purchasing power, it cannot destroy it entirely. After the court grants you bankruptcy relief, you can qualify for these types of cards:

Secured Cards

Many credit cards are available out there. However, if your credit score has been destroyed by bankruptcy, a secured credit card can help build your credit. Secured credit means that you must deposit some money before opening an account. The money you pay is considered a deposit and is held by the user as long the account remains open. 

Using your secured credit card responsibly can be a great way to improve your credit. Missed payments on the credit card can deter your efforts to build your credit. Once proven trustworthy, you can easily transition from a secured credit card to an unsecured one with more benefits.

Retail Cards

A retail card could come in handy when you want to build your credit following bankruptcy. Often, retail credit cards have lower credit requirements making it easy for a person to qualify even with a negative credit score owing to bankruptcy. However, it is essential to check out for high-interest rates, typical for loans with no restrictions on credit. When you go for a retail card, you should avoid taking more credit than you need. Also, you should set goals on making payments and do it on time.

Utilize a Cosigner

Taking additional credit and repaying it as your creditor requires can help boost your credit score. However, you may find it challenging to qualify for a loan or rental agreement after bankruptcy. However, by utilizing a cosigner, you can improve your chances of receiving credit. S cosigner is an individual who agrees to pay your loan if you are incapable of paying.

Although the cosigner does not have any rights on the amount you receive as credit, they may be held liable for any balance or amount you fail to pay back. When a person cosigns your loan, the creditors may have more faith in you and write a good report on you. Since your conduct after taking the cosigner loan could affect the other person’s credit score, it is vital that you carefully consider who you ask to cosign your loan.

Secured Loans

A secured loan is a loan where you must produce collateral to secure credit. Collateral, in this case, could be in the form of real estate, a vehicle, or any other valuable item. Qualifying for a secured loan can be difficult. Due to the uncertainty of the collateral condition, the lender must assess your credit history before offering the secured loan. However, if approved, the loan has a more extended repayment period, and you can borrow more. Since the installment for such loans is low, you can build your credit score by paying consistently and on time.

However, it is crucial to understand that failure to pay a secured loan could result in repossessing of collateral if it is a vehicle or foreclosing of a home used for collateral.

Practice Responsible Credit Habits

Although your credit score will improve as your bankruptcy fades into the past, practicing healthy financial habits can help you rebuild your credit faster. Some of the habits include:

  • Consistent and timely payments. Your payment history accounts for up to 35% of your FICO score calculations. Therefore, as you attempt to build your credit, you need to ensure that you pay your debts consistently and on time. Additionally, it would be best to stay on top of your bills.
  • Keep credit balance low. The amount you owe to creditors can make up to 30% of your FICO score. Therefore, keeping your balances low at all times is a vital move in rebuilding credit after a bankruptcy.
  • Reduce the use of your credit card. There are several reasons why people opt for bankruptcy. Reducing the use of your credit card or avoiding it helps you stay clear of overspending and landing into more debt. 
  • Build an Emergency Saving fund. If possible, it would be wise to build an emergency fund. This will help you have money to pay for emergencies like medical bills and vehicle repairs. Having an emergency fund enables you to avoid more debt.
  • Be patient. The time it will take to restore your credit score may vary by the borrower. For this reason, it is essential to be patient. It would be best if you were not tired of making a proper financial decision since it can take several months to two years to notice a change in your credit score.
  • Avoid falling into credit repair scams. It would help if you avoided con schemes from individuals who claim that they can wipe out the effects of bankruptcy from your credit report. Bankruptcy cannot stop appearing in your report until the allocated time of seven to ten years ends.

Utilize Credit Counseling and Debtor Education

Before the court grants you bankruptcy relief, the judge requires that you undergo credit compelling and debtor education. Credit counseling is a course that helps you decide whether bankruptcy is the best option for your financial situation. You will also be taught about other alternatives to bankruptcy that you can explore to reorganize your finances.

After filing for bankruptcy, you will undergo another course known as debtor education. This course offers you the tools you can rely on during the bankruptcy process. You can utilize the information you learn from these courses while building your credit.

Find a Skilled Bankruptcy Attorney Near Me

The decision to file for bankruptcy is often challenging. Most people use it as a last option when debts become too overwhelming. The bankruptcy process is not only stressful but also damaging to your credit score. Although the effects of a bankruptcy on your credit do not last for a lifetime, they affect your ability to take loans and move forward to build your financial life. Your bankruptcy will always be apparent to creditors when they want to understand the reason for your low credit score. 

For this reason, it is vital that you take the necessary steps to rebuild your credit as soon as the bankruptcy proceedings are over and you are granted relief. While rebuilding your credit after bankruptcy may seem challenging, it is doable. By exploiting options like monitoring your credit report, using the secured card responsibly, and taking secured loans, you can quickly rise back up and build your trust with creditors.

Dealing with the issues of bankruptcy aftermath is stressful, especially when you do not understand bankruptcy laws. At Los Angeles Bankruptcy Attorney, we will help you understand the effect of bankruptcy on your credit and guide you towards rebuilding it. We serve clients seeking legal guidance in Los Angeles, CA. Contact us today at 424-285-5525.