How to Rebuild Credit After Bankruptcy

How to Rebuild Credit After Bankruptcy

Don’t feel desperate if your credit score drops below zero and you file for bankruptcy. If you take appropriate measures, then even a disastrous situation can be corrected. 

Bankruptcy is always a difficult thing to cope with. It is challenging both for your peace of mind and your credit history. Anyway, it doesn’t mean that you should put a red cross on your plans to loan money in the future. 

Even after bankruptcy, you can make use of financial services. However, to make it possible you will have to put much effort into it and get ready to wait. In most cases, the rebuilding of a score takes between 7 and 10 years.

If you want to know how to build credit after bankruptcy, keep reading this article till the end. Below you will find helpful tips that will help you get back to normal life.

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3 Best Credit Cards After Bankruptcy in 2022 

At first, it may seem like a crazy idea to pick up a credit card after bankruptcy. In fact, this step can speed up the credit-rebuilding process. Thanks to this card you will be able to prove your creditworthiness.

All your financial transactions will be reported to 3 credit bureaus. If it is positive, your score will improve very fast so that you will be able to get a fresh start. What’s more, it can help you instill positive money habits. 

It may be difficult to find a company eager to issue a credit card for a person with bankruptcy. It is okay. If you keep searching you will find such services. 

We have defined top-3 cards for those who want to rebuild their payment history after bankruptcy! Note that you should apply for such a card only if you are ready to bear responsibility for borrowed money.

Discover it® Secured Credit Card 

This card is featured by numerous advantages it offers to its customers. It allows 2% cash back at gas stations and 1% on other purchases. Among other things, it doesn’t charge an annual fee and doesn’t set a minimum score to apply for services. 

A secured banking card is a great option for those who don’t know how to build credit after bankruptcy. It offers a security deposit up to $2,500 with the opportunity to get a credit line equal to the amount of the deposit. Among its other benefits are no late fee on the first late payment and no foreign transaction fees.

All users go through an automated evaluation of deposit returns after 7 months. If a person fulfills all financial obligations, he or she starts building good financial habits with the potential to use this card as an unsecured one. 

Discover it® Secured Credit Card has rewards for its clients. Apart from cashback, there is a free-of-charge fraud library. A regular APR is $24,44%. A balance transfer intro APR is 10.99% for half of a year. 

Capital One Platinum Secured Credit Card 

It is another worth-considering solution to rebuild credit after bankruptcy. This one also sets no annual fee and has no hidden fees. The purchase APR is fixed at 26,99%. 

The card allows making minimum deposits with a credit line of $200. The more money a person deposits, the higher initial bank line becomes. 

All customers can make use of flexible due dates by choosing the most suitable date by themselves. Another benefit of Capital One Platinum Secured Credit Card is that you automatically get access to your credit score via the card’s tool. 

It will help people get control over their ratings and understand whether they are going the right way. What’s more, your credit line will be automatically checked for a higher credit line after 6 months. 

However, you should remember that this card doesn’t offer rewards and sets a relatively high APR.

OpenSky® Secured Visa® Credit Card 

To get this card you don’t need a bank account or a payment history check-up. If you don’t know how to build credit after bankruptcy, you should consider this option. 

OpenSky can help you improve your credit rating. It can boast of an 85% average approval rate for the last 5 years. The company requires from $200 up to $3,000 initial deposit. 

All customers can choose a comfortable due date for them. Just like the Platinum One solution OpenSky checks the user’s eligibility to increase their line after 6 months (no additional deposit is required).

According to the official website of the company, this card allows clients to add 30+ points to their score within the first 3 months. 

Despite the fact that a regular APR is low – 18,89%, there is an annual fee of $35. What’s more, there are no rewards and a 3% charge for foreign transactions. Take into account these facts while choosing the card for credit rebuilding after bankruptcy. 

Our selection requirements 

We highly appreciate our reputation. Before choosing the best cards for rebuilding credit after bankruptcy we carefully analyzed all available options. There were a lot of them to consider, so we spent a great deal of time on it.

Why have we opted for these 3 solutions? Our team has prepared an inventory of criteria we should pay attention to. According to them, we sorted out “suitable” and “unsuitable” variants.

Among our requirements were:

  • Best for: we looked for banking cards that are available for people with a poor score. It was essential for us to help people find ways to rebuild credit after bankruptcy. 
  • Overview: customer feedback and rating speak louder than the official website. Overview helps analyze the quality of rendered services and the company’s reliability.
  • Rewards: people after bankruptcy need special bonuses to get back to normal life. We tried to find the best conditions for such clients.
  • Minimum credit line: if you lack money, the minimum credit line is the first thing to consider. We looked for flexible options with automated reconsidering of this amount after some period.
  • APR: annual percentage rate is the price you pay for borrowing money. The lower this interest, the more money a person can save.
  • Pros & cons: it is essential that the advantages of the offer are greater than their disadvantages.

Steps to rebuilding credit after bankruptcy

As you have already understood, bankruptcy is not a life-long stigma. If you take appropriate measures you can return to your previous life within 7-10 years. It may seem like infinity to you but don’t be afraid! Your score and payment history will improve each year (provided you fulfill all financial obligations). In such a way the negative impact of bankruptcy on your life will fade with the flow of time.

Anyway, score rebuilding after bankruptcy requires hard work. To become a reputable borrower again you should take appropriate steps. If you don’t know how to rebuild credit after bankruptcy, you can follow our recommendations!

Check your credit report for errors

The first thing you should do to improve the situation is to analyze your credit report. All customers have a right to get a copy of their payment history. It can be done by visiting a website or office of a company that provides financial services.

After you get a copy of your report try to find out what makes your score rise and fall. Due to this information, you will be able to work the best credit rebuilding strategy exactly for you.

Another pivotal reason to check your report is to detect possible errors. Lenders can make notices mistakenly because of a system failure or human error. 

The earlier you find inaccurate records, the easier it will be to remove them from your credit history. Remember that the information about your bankruptcy must be deleted after 7 years (for Chapter 13) and after 10 years (for Chapter 7).

Monitor your credit rating 

Bankruptcy has a devastating impact on the client’s credit score. Even if you had more than 700 points (which is considered to be very good) it can fall to 200 points. And if your score before this development was below 700 it can decrease up to 130 points. It seems like a real disaster at the beginning but it isn’t true.

Look at your score before you start its improvement and make a notice of it. Then you should check it regularly (once a month) to trace the tendency. How fast is it growing? Are you satisfied with the results? Can you cope with this process alone or do you need professional help? To answer these and other questions, analyze your progress. You can achieve a goal only if you understand the path.

Be responsible about your credit 

All your financial activity is recorded and analyzed. The best way to improve your score after bankruptcy is to instill positive habits.

Since with the flow of time your previous records fade, the recent ones replace them. It means that you have to do your best to replace negative notices with a positive one. To make it possible you have to take control over your life and budget.

First and foremost, don’t miss paydays. Make sure you make consistent and on-time monthly payments. 

Secondly, try to form a safety bag. It may seem difficult but it is still possible. Try to save 5-10% of your income. 

Thirdly, try to live as if you don’t have a credit card. Avoid buying things on a whim and avoid temptations. This sacrifice will pay you off in the future.

Get a credit-builder loan 

In case you don’t know how to rebuild your score after bankruptcy you can make use of a credit-builder loan. It is an interesting alternative to a traditional loan.

A person has to pay money to a lender before getting this amount as a loan. The sum usually varies from $300 to $1,000 and is regulated by the Consumer Financial Protection Bureau.

Sounds strange, doesn’t it? In fact, it is an effective way to get additional motivation and inspiration to save money.

It is pivotal to mention that a client can’t withdraw money. A person deposits them until a particular sum is accumulated. To take such a loan, you may be asked to pay an administration fee when you make the deposit.

Consider getting a loan to develop your credit 

Among other steps that can help you improve your situation after bankruptcy is taking a secured credit card. A secured card is a type of card that is secured by a deposit from the cardholder. 

It works like a regular loan card. Since it is indexed in credit bureaus, you can quickly build a credit history with it provided you fulfill your financial obligations.

To open this type of card, you need to deposit a certain amount of money to the bank (it can be either 200 or 1000 dollars). After it this money will be deposited into a deposit account, and the applicant gets a card with the same credit limit. 

Consider a Co-signer 

It is one of the most obvious steps. Co-signer is a person who shares responsibility for a loan with a borrower. In case you fail to repay your debt co-signer will be required to pay it back instead of you. 

On the one hand, such a person will help you conduct financial activity and improve your payment history. On the other hand, it is difficult to find a co-signer if you don’t want to spoil your relations with the nearest and dearest.

Become an authorized user

Another beneficial option for you to consider is becoming an authorized user. It is when you get access to the credit card account of another person. Its main advantage is the fact that anyone can become an authorized user. The criteria for it are set by a cardholder.

In case you manage it, you will be able to make purchases using this credit account. However, the payments made with this card will be also traced and recorded in your payment history. Provided you make everything as you have to, your score will improve. 

Think twice about working with credit repair agencies

There are a lot of scammers in the sector of financial services. You can face credit repair agencies that promise to rebuild credit after bankruptcy within a year or even faster. 

Of course, they ask for a solid payment even before they start their work. You should remember that score improvement isn’t possible within such a period!

Of course, there are reputable repair agencies that offer high-quality services. If you wish, you can apply for professional help. 

Anyway, such companies won’t do anything special for you. There are no hidden tools or secret ways to fix credit fast. Credit repair agencies will do the same things you can do for free.

How long it takes to rebuild your credit after bankruptcy 

It is usually the first question that arises after people go bankrupt. The answer may sound disappointing for some of you. 

You can improve your credit score with each year but to delete a “bankruptcy” note from a payment history you will need to wait from 7 to 10 years. The term depends on a chapter of your insolvency.  

If you are bankrupt after Chapter 7, (a complete liquidation of a company’s assets to pay off debts and cancel remaining unsecured debts) you will need 10 years to rebuild credit.

In the case of Chapter 13 (you have 3-5 years to resolve debts while applying all your disposable income to debt reduction), the score rebuilding will take 7 years.

Rebuilding your finances after bankruptcy 

Now you understand that it requires great time and energy investments to get back to normal financial life after bankruptcy. It isn’t an easy thing to do but still possible. 

You should also know that a person can go bankrupt more than once. It means that it is pivotal to review your budget and money habits to solve this issue. 

In other words, you need to master financial education and learn from your mistakes. If you have friends or relatives who are successful at managing their finances, don’t be afraid to ask for advice.  

Rewrite Your Budget 

To prevent yourself from financial collapse you need to plan your budget. Many experts believe that it should be done each month. 

Today there are two options for people to choose from. There are numerous financial apps that can help you control, plan, and analyze your expenditures accurately. If you prefer traditional solutions, then you can make use of a simple notebook.

Among basic tips that we can give you are:

  • Don’t plan to spend more than you earn;
  • Don’t count on unexpected income;
  • Rank your expenses due to their importance;
  • Set long-term goals;
  • Don’t deviate from your plan;
  • Keep track of expenses;
  • Don’t forget about savings.

Begin building an emergency fund 

Savings is the part of your budget that can be set aside for meeting specific needs in the future. You can save for different purposes: to achieve your financial goals, to have reserves in case of unforeseen events, etc. Anyway, savings make us feel more secure and independent. 

The easiest way to start is to open a savings account in a bank with the possibility of monthly replenishment and interest capitalization. If you put money on a deposit with interest capitalization for a long time, it will “increase” thanks to the compound interest effect.

You can find a saving strategy that is the most comfortable for you. Experts recommend saving from 10 to 30% of your monthly income. 

Practice good credit habits 

Try to change your attitude to money and learn to live with them in harmony. Plan your budget, don’t buy things on a whim, and think about savings. 

If you shop online, leave the items in a basket for a day and give yourself time to think whether you really want to buy them. 

Go to a supermarket with a list of needed products. Don’t miss payments. Unsubscribe from apps you don’t use but pay for. There are so many things you can do! Just investigate yourself and try to manage your budget effectively.

FAQ

Is it expensive to rebuild my credit after bankruptcy?

There is no price for it. There are no services like that. All you can do is to change your financial habits, manage your budget efficiently, and don’t miss payments. Even if you apply to a credit repair agency they won’t help you in a month or year to solve your problem. It requires great time and effort investments, not money.

What is the best credit card after bankruptcy?

We have ranked Discover it® Secured Credit Card first because of multiple benefits it presents. This card offers 2% cashback at gas stations and 1% on other purchases. A regular APR is also low - $24,44%. No annual fee, foreign transaction charges, and minimum credit score required.

Can I take loans if I want to build my credit after bankruptcy?

Yes, you can make use of a secured credit card or loan. The more money you deposit, the higher credit line you have. If you fulfill your financial obligations, you can increase your score. Before doing it make sure the chosen lender reports to credit bureaus.

What affects my credit?

There are a lot of factors that influence your financial reputation. For example, if you miss payments you seriously harm your credit score. Among other things there are your payment history, the amount of money you owe, types of loans you apply for, length of credit history etc.

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