Your credit score probably wasn’t great before you filed for bankruptcy. After filing, it probably got a little bit worse. Luckily, you now have all that unsecured debt out of your way and you can focus on rebuilding your credit without being dragged down by all that old debt.
There are some simple steps you can take to get back on the path to great credit. Most of these involve having positive items reported on your credit report. The longer you work at adding positive marks to your report, the better your credit score will be.
1) Secured Credit Card
A secured credit card is a definite must for your first step toward a great credit score. Start setting aside a bit of money after your bankruptcy to put toward a secured card. What makes it different from a regular credit card is that it acts more like a debit card than a credit card. You give the bank money before you use the card, and as you use it, the bank withdraws the money from your card account. Although it acts a like a debit card, you will start receiving positive marks on your credit report as soon as you start using your secured credit card.
2) Gas Station and Retail Cards
Gas and retail cards are the easiest form of real credit cards to be approved for. You should be able to easily get a gas card and a retail card shortly after getting your secured credit card. These will also show positive marks on your credit report when you begin using them.
3) Check your Credit Reports
You are allowed a free copy from each of the three credit bureaus once per year. You can obtain your free reports by visiting the government sponsored site, annualcreditreport.com. Comb through each and see if there are any items that are incorrect and dispute them through the credit reporting agency. Also look for any collections on your report and pay them off if you have enough money to do so.
4) Don’t Pay Your Bills Late
Late payments drag down your credit score and undermine the other efforts you are making towards improving your credit. They remain on your report for at least three years and will continue to be a problem for you until they drop off the report. Consequently, it is extremely important to be mindful of when your payments for things like utilities, mortgages, auto loans, etc. are due, and pay them in a timely manner.
5) Pay Off Your Balances Completely on a Monthly Basis
Be careful to pay off your card balances every month so you don’t get back into trouble with debt. You do not need to carry a balance over from one month to the next in order to improve your credit. Simply making small charges and paying the cards off monthly will help raise your credit score.
6) Apply for a Credit Card
If you follow the above steps, you should quickly be able to apply for a regular credit card. You also may be able to request that your secured credit card be changed into a standard credit card that doesn’t require you to carry a balance. Your first card may have a low limit, but that doesn’t matter.
As long as you are able to make small, monthly charges on the card, it will help improve your credit score. Again, there is no need to carry a balance on the card, because this will not necessarily help you get better credit. It also might subject you to the risk of having more debt than you can handle. You don’t want to go down the same path that brought you to Chapter 7 bankruptcy in the first place.
If you keep up the hard work and follow these six steps, you should be able to rapidly improve your credit score. Within two years, it will likely be good enough to qualify for a standard home loan. But keep in mind, once you credit is improved, these are still good financial practices to maintain for the rest of your life. Follow these, and you can avoid ever having to file for bankruptcy again.