Most of my clients ask for advice on how to rebuild credit after bankruptcy. The good new is that it is absolutely possible to have a good credit score within just 12-24 months of filing for bankruptcy. You will need to have a plan and stick to it, but it is not impossible by any stretch of the imagination!
Chapter 7 bankruptcy will give you a fresh start. Your old debts will be a thing of the past. No more collection calls, garnishments, or lawsuits. But bankruptcy itself doesn’t do anything for your credit. That is up to you.
An easy way to start working on your credit might not actually take any effort on your own part. If you are keeping a car loan, called a “reaffirmation” in bankruptcy terms, your lender will report your ongoing payments to the credit bureaus. This means that you don’t even have to apply for any new accounts to start working on your credit after bankruptcy. However, it is important that you make your loan payments on time!
Not everyone knows what makes up a credit score. For purposes of this blog, one of the most important parts of a credit score is your payment history. Even one late payment that hits your credit can wreck months and months of hard work. So whatever you do after bankruptcy, make sure that your payments on credit accounts are on time each and every month!
Right after bankruptcy, it will be very possible to get new credit cards. In fact, you will probably receive credit card solicitations in the mail. Be careful though: a lot of the products being offered to you right after a Chapter 7 bankruptcy will have high interest and fees. Know what you are getting into before signing up.
What I strongly recommend to people after bankruptcy is this: a secured credit card. Most of the major banks offer them. I know that Capital One and US Bank offer good secured credit card products. A secured credit card requires a deposit in the amount of your credit limit. They usually start small, around $300 to $500. Once you establish a good history of on-time payments and responsible use, the bank will convert your secured card into a full credit card — and they will even refund your deposit!
Whatever route you take, it is critical that you maintain good credit habits. Don’t max out your accounts and make sure you are making your payments on time each month. A good credit score is no free lunch. It will take a concerted effort and careful planning to get right. But it is worth the effort!
If you have questions about re-establishing credit after a Chapter 7 or Chapter 13 bankruptcy in Sacramento, please call my office at (916) 333-2222.