How to Improve Your Credit After Bankruptcy

Surviving a bankruptcy requires mental stamina. While you are going through the bankruptcy process, it may seem as though your credit future is utterly bleak. This is not the case. The way to emerge from bankruptcy is with self-dignity, a positive outlook and a plan for your financial future that can be realized by re-establishing your credit.

Bankruptcy leaves a stain on your credit history that only time will erase. It takes up to ten years for a Chapter 7 or Chapter 13 bankruptcy to be removed from your credit report. This does not mean that you should wait until the filing disappears in order to start repairing your bad credit. From the day your bankruptcy case is closed, you need to begin the rebuilding process. Most individuals have learned that in order to qualify for any loan, they need to have verifiable credit history. For a bankruptcy survivor, this creates a vicious circle; defaulting on debts, even through a legal bankruptcy, leaves potential creditors wary of extending more credit. With conventional loans and other forms of credit, this leads to swift application denials. These refusals create further credit rating drops, which in turn, lead to a bigger borrowing nightmare.

Healing your credit after a bankruptcy, and qualifying for both loans and decent interest rates, is not impossible. In fact, it is possible to significantly improve your credit within only a year or two post bankruptcy. All it takes is determination, and knowing how to go about re-establishing a positive history of borrowing and timely repayment. One of the best ways to get started with the credit rebuilding process is through a secured credit card. This type of credit card is available through numerous providers and can often be applied for online. A secured credit card requires that the borrower deposit an amount equal to their credit limit with the card issuer. This cash deposit gives an issuer the security they need in case of a default on the borrowed balance. If a card holder fails to pay the balance owed on their secured credit card, the issuer retains a corresponding amount of deposit to cover the deficiency. While the deposit is held, the borrower receives a nominal amount of interest on their money.

As with any credit card, building positive history requires discipline, smart money management, and in some cases third-party help. Borrowers should avoid charging more than thirty-five percent of the available credit balance on any credit card. Use the card only for purchases that would be made on a regular basis; special purchases or items that are not necessities should not be charged on a secured credit card. Pay off the entire credit card balance each and every month; doing so has a two-fold benefit, you get to use the card issuer's funds from the purchase date through the grace period to the due date. Plus, you avoid any credit card interest charges, which are scandalously high even for those with an excellent credit rating. In order to realize the full benefits of a steady history of borrowing and repayment, it is an excellent idea to apply for and use two or three secured credit cards. Keep the requested credit limits within a reasonable range, say between $300.00 and $500.00 for each card. If you need help, consider visiting a local non profit service. They can often time give you the advice and accountability you need to be successful in your pursuit.

Using secured credit cards as stepping stones, across the river of bankruptcy to solid financial ground, is a wise choice. A secured card allows you to rebuild credit sensibly, while learning sound money management habits. By the time your credit has been repaired, and you qualify for an unsecured card or loan, you will have acquired the skills and experience necessary to confidently move forward with a successful credit future.