Bankruptcy can be a huge weight lifted off your shoulders, but it also leaves a mark on your credit report. This does not have to be a permanent setback. Rebuilding your credit after bankruptcy is absolutely possible, and with some focus and discipline, you can see significant improvement within a couple of years. The key is to establish new positive credit habits and patiently watch your credit score climb. The first step understands how bankruptcy impacts your credit. There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. A Chapter 7 bankruptcy typically discharges most of your debts, but it will stay on your credit report for up to 10 years. A Chapter 13 bankruptcy allows you to keep more of your assets by creating a repayment plan that lasts 3 to 5 years. This stays on your report for 7 years. Regardless of the chapter you filed under, rebuilding credit involves similar strategies. The most important factor influencing your credit score is your payment history. After bankruptcy, it is crucial to make all your future bill payments on time, every time. This includes things like rent, utilities, phone bills, and any remaining debts you were not able to discharge.
On-time payments demonstrate to lenders that you are a responsible borrower and can be trusted to manage credit wisely. Another way to rebuild credit is by opening new lines of credit and using them responsibly. This might seem counterintuitive after bankruptcy, but it is a necessary step to show lenders your new financial habits. Secured credit cards are a great option to start. These cards require a deposit that serves as your credit limit. As you use the card and make on-time payments, your credit score will benefit. After using a secured card responsibly for a while, you may be upgraded to a traditional unsecured credit card with a higher limit. Beyond secured cards, consider applying for store credit cards or gas station cards. These are often easier to obtain after bankruptcy and can still help establish positive credit history. Remember, the key is to use these cards strategically. Do not max them out, and always pay your balance in full each month. This keeps your credit utilization ratio low, another significant factor in your credit score. A credit utilization ratio is the percentage of your available credit limit that you are using. Ideally, you want this number to be below 30%.
While building new credit is important, do not neglect any existing accounts you may have. If you have old credit cards that were not closed during bankruptcy, keep them open, even if you do not use them. Having a longer credit history can actually help your score, so closing old accounts can have the opposite effect. Just be sure to avoid using them and incur new debt. Rebuilding credit is a marathon, not a sprint. Do not get discouraged if you do not see immediate results. It typically takes 12 to 18 months to start seeing improvement, and it could take up to two years to reach a fair credit score 650 or higher. Be patient, stay committed to your new financial habits, and monitor your credit report regularly. You can obtain free copies of your credit report from each of the three major bureaus Equifax, Experian, and TransUnion once a year. Freedom Bankruptcy Law Attorneys report allows you to identify any errors and dispute them if necessary.