Credit Repair After Bankruptcy

I receive many questions about credit repair after filing bankruptcy. Credit scoring and reporting is not a bankruptcy law issue; it is more a matter of personal finance. What follows is a Guest Post of Mr. Ed O'Brien who works in the are of personal credit, and who maintains a website on the subject.

"It’s no secret that bankruptcy wreaks havoc on your credit. Based on bankruptcy and credit reporting law, bankruptcy can be listed on your credit report for up to 10 years. In the meantime, you’ll find it hard to get approved for new credit cards and loans. You don’t have to wait the full 10 years to start getting credit again, and you shouldn’t, since there are techniques to repair your credit after bankruptcy.

 Credit reporting law allows accurate information to be listed on your credit report, so trying to remove a legitimate bankruptcy from your credit report prematurely will be a waste. You should, however, check your credit report to make sure your bankruptcy is reported accurately. Accounts that were discharged in bankruptcy should reflect a $0 balance and bankruptcy status. Otherwise, it looks like you have outstanding delinquent debt. If a discharged account isn’t reported accurately, you can dispute it with the credit bureau.

 Next, you should get new credit within a year or two after your bankruptcy discharge. Skip regular credit cards completely because you’ll undoubtedly be denied. Instead, apply for a secured credit card which is a type of credit card that requires you to make a security deposit against the credit limit before you can be approved. The security deposit is the creditor’s guarantee that you won’t default on the balance. The creditor can use your security deposit if you default or file bankruptcy again. But, if you use your credit card responsibly and make all your payments on time for several months, you can get your deposit back.

Some secured credit cards will start you out with a credit limit as low as $100. That’s not much of a credit limit so make it your goal to save up $500 that you can use to get your first secured credit card after bankruptcy. Choose wisely because many secured credit cards charge high annual fees and interest rates. Shop around just like you would for a regular credit card.

 Use your card, but use it wisely. Avoid the mistakes that led you to bankruptcy. Keep your balance low, ideally below 30% of your credit limit, and pay it off before the due date every month. Doing this begins to re-establish a positive payment history on your credit report. A history of timely payments will improve your credit – payment history is 35% of your FICO score. Staying out of debt will also help since your level of debt is 30% of your FICO score.

 Don’t neglect the financial basics which play a key part in your credit health. Managing your money well is a prerequisite to building good credit. Create a budget for your income and stick to it as you spend throughout the month. Make sure you’re not overbooking your financial commitments and you’ll be less likely to rely on your credit cards to get you through.

 Credit repair takes time, especially after a bankruptcy. Keep taking the right steps, making timely payments on a few credit lines with low balances and your score will improve."

 Ed O’Brien is a seasoned writer in personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.