6 Steps to Regaining your Credit after Bankruptcy  

Bankruptcy happens to good people. They are often a last resort in the aftermath of something equally catastrophic: a failed marriage, a closed business, job loss, or a life-threatening illness. And yes, sometimes, individuals file for bankruptcy because they simply didn’t manage their finances appropriately.

If you filed for personal bankruptcy in recent years, you are not alone. In 2014, 292 of every 100,000 people filed for bankruptcy protection in the United States, according to Statistica. That’s a sharp decline from the 2005 all-time high, reported by Debt.org, when “one out of every 55 households filed for bankruptcy.”

Although your attorney might have told you that you look better financially the day after your bankruptcy is discharged, those words ring a bit hollow. There’s a gaping wound where your credit—and self-esteem—used to be and a bandage isn’t going to heal it overnight. Fortunately, you can take steps immediately to re-establish your credit and regain your good financial name.

Move Past Guilt
Yes. You messed up. Berating yourself for your lack of financial acumen keeps you from moving forward and learning from your mistakes. Your goal, in the aftermath of a bankruptcy, is two-fold. You need to learn to better manage your finances, and you need to prove to the world that you are credit worthy. You cannot alter your financial past, but you do control your future.

Enlist Emotional Support
The last thing you need when you are depressed about your financial situation is a little devil on your shoulder suggesting retail therapy. What you need is a support network that knows and understands your situation, and to whom you can turn during the rough patches. Your mom, your sister or your best friend are great sources for fun nights in when your budget says you cannot go out on Friday night or to lend you a dress for the wedding next weekend so that you don’t have to spend money to purchase one. Positive people will help you achieve positive results.

Develop a Solid Financial Plan
You didn’t end up in a financial quagmire overnight, therefore, you can’t expect to crawl out of it instantly either. You need a plan to not only rebuild your credit and financial security, but also to keep you from falling into the patterns that created financial hardships in the past. By paying your bills on time and securing and managing new credit, you will be able to rebuild your credit score to once again obtain credit and receive better interest rates.

Two primary concerns after bankruptcy are creating a realistic budget and paying bills on-time. Budgeting your expenses helps you stay on track and make your payments in a timely fashion. If you can become frugal to a fault, you might be able to pay down any remaining debt faster or save a greater portion of your income for a financial cushion to allow you to maintain your bills even if the unthinkable such as job loss or a medical issue creates a temporary setback.

If you reaffirmed some debt such as a car loan or home mortgage during your bankruptcy, fulfilling those credit obligations will go a long way to re-building your credit score. Paying off your reaffirmed car loan sooner than anticipated, for example, will also mean that your efforts will be reported favorably to the credit bureaus that much sooner.

Know Your Score
The good news is if you have already filed for bankruptcy protection, you probably have intimate knowledge of your credit report and the details about you that it contains. Each time you seek credit—automobile loans, mortgages, student loans and unsecured debt, such as a credit card—the lender reviews your FICO score to see where you rank as a credit risk. The higher your score, the less of a risk you appear to be to the lender. There are three reporting agencies: TransUnion, Equifax and Experian. Each tally’s your score a bit differently, so your score may vary per report. There are several ways to obtain a copy of your reports. If you have been denied credit, you are entitled to a free copy of your report. You can also get your reports through several online sources including Credit.com and CreditKarma.com.

Know your score. You knew your G.P.A. in college, think of your FICO score as your adult G.P.A. You should know how you’re doing at any given moment. Scores above 700 are desirable and attainable if you do your homework.

Check your report to ensure that the information on your report is correct. If you never had a Macy’s card, but they are reporting you as delinquent, you will need to prove that you never had credit with Macy’s and get the reporting agency to correct their report.

Credit, good or bad, reports for seven years, so it is imperative that as you rebuild your payment history, you don’t allow any late-payment blips to sully your good financial image. As you make more on-time payments, you should see your FICO score climb slowly but surely.

Become a Loyal Banking Customer
Now that you have a budget and are back on track, it might be beneficial to you to build a relationship with one bank or credit union for all of your accounts. Begin by shopping for the best rates for your checking and savings accounts. Make automatic transfers to your savings account each month and pay your bills by the due date using the free bill-pay feature at your bank if one is available. The bank that knows you and sees your spending history is more likely to consider you for a small loan or unsecured credit card.

Gingerly Apply for Credit
Debt brought you to the bankruptcy attorney’s door in the first place. Fortunately, at least immediately after a bankruptcy, not very many banks will be willing to help you get into debt again. However, you do need to rebuild your credit by establishing new credit and paying those bills in full and on-time.

Loans – As you become more financially stable, you can apply for an installment loan, such as a car loan to continue to prove your renewed money management skills. Bear in mind that you will likely have to pay a substantially higher interest rate than you are used to for the privilege of making payments. Shop around for the best rate, but do so in a finite window of time, a month for example, as each request for credit will negatively impact your credit score a bit. Don’t stretch your budget! With the higher interest rate, you might have to rethink how much car you can purchase when you factor in the higher interest you could be expected to pay.

Secured Credit Cards – The Catch-22 of establishing yourself as a good financial risk is that it is flat-out hard to obtain a credit card after a bankruptcy. You need to re-establish, but you don’t have the best track record. Secured credit cards offer one solution. A secured credit card is one for which you place a deposit with the credit card company in exchange for credit up to the amount of your secured deposit. So, a $500 deposit will enable you to carry a balance of no more than $500. If you fail to pay, the bank has the money to cover your debt.

Some secured cards will increase your spending limit incrementally based on your payment and charging history. If you use the card and pay it off each month, you demonstrate your ability to manage your money. Shop around for the best rates and lowest fees before applying for a secured card. Most do charge annual fees, but they vary widely by lender, as do the APR (annual percentage rate) on the card for balances carried.

Bankruptcy is no picnic, but it could be the catalyst to a smarter, more secure, financial future. Learn from your past mistakes. After all, over the years you learned from your dating blunders, makeup mistakes and fashion faux pas. (Well, maybe you’re still mastering the dating thing.)  This too shall pass and your future 750 credit score will prove it.