Rehabilitating your credit after bankruptcy

Although bankruptcy causes credit scores to fall, they can be rebuilt in as little as a year.

Many people that are struggling with debts that they are unable to pay are afraid to file bankruptcy to get the help they need. One of the main reasons why this is so is that there is a perception that bankruptcy ruins credit. Although it is true that bankruptcy causes your credit score to decrease, its negative effect need not be long lasting. In fact, if you take steps to demonstrate your financial responsibility, you may rebuild your credit in as little as a year or two.

Assess the damage

Since your credit score determines your likelihood to repay your debts in the eyes of potential creditors, it is important to check it as soon as you have finished bankruptcy. To do so, order a copy of (or view online) your credit reports from the three main credit reporting bureaus. Check each report carefully, as debts discharged during bankruptcy are sometimes erroneously reported as outstanding, which can unfairly cause your score to be lower than it should. If you find any errors, report them to the corresponding reporting bureau as soon as possible, so your score can be corrected.

Use credit cards responsibly

If you had problems with credit cards in the past, the last thing on your mind after bankruptcy is getting into credit card debt. Although they can be abused, credit cards can be one of the best ways to rebuild your credit score, if used responsibly. Once you have completed bankruptcy, you may not qualify for a traditional credit card right away. If this is the case, consider applying for a secured credit card instead. This type of credit card prevents overspending by requiring you to put up a deposit first. The amount of the deposit determines your credit limit. Although this may seem like a hassle, if you use the card responsibly, you may find that it will not be long before you qualify for a traditional card.

In order to have the best chances of increasing your credit score, credit experts recommend that you limit your charges on the card to no more than 20 percent below your credit limit. In addition, it is important to pay the balance off in full each month. As time goes by, your responsible payment history will be noticed by the credit reporting bureaus, and your score will increase as a result.

Timely pay other bills

A responsible payment history with your credit cards will not do you much good if you neglect to pay your mortgage, rent, utilities and other regular bills. It is estimated that your history of payment of these bills makes up 35 percent of your credit score. As a result, it is imperative to ensure that they are paid in full and on time each month. If you have trouble remembering to pay these bills, consider signing up for automatic bill payments, so you will never be late again.

Speak to an attorney

If you follow these tips, your credit score will slowly increase. In less than a year, you may qualify for a car loan. Within one to two years after bankruptcy, you may once again qualify for a mortgage.

Unfortunately, bankruptcy's effect on one's credit is only one of the many exaggerations and myths out there. If you are struggling with bills, it is important to consult an experienced bankruptcy attorney when deciding what to do next. An attorney can give you the straight story about the pros and cons of bankruptcy and recommend the best option to get you back on your feet financially.