Rebuilding credit after bankruptcy may be easier than you think. Bankruptcy can actually help with improving your credit scores, because it eliminates your debts. This can improve a credit rating because it lowers your debt-to income ratio, one major component lenders use when deciding what interest rate to charge you.

There are even specialty loan programs that exist for consumers after bankruptcy, and complete restoration of your credit may be possible within as little as 2 years.

Here are 10 guidelines to get you on track:

1. Budget and save. With your debts eliminated, your first priority should be to begin saving money right away. Because you won’t immediately have borrowing power, this is vital in case emergency needs arise. So get in the habit of paying by cash or check only. Saving will allow you to build up a down payment for a major purchase such as a car or house. Having a down payment will be vital for obtaining a loan after bankruptcy to improve your credit rating.
    

2. Avoid bouncing checks. The result can be more than an overdraft or NSF fee. Although not reported to credit agencies, bounced checks are tracked internally by banks, using the ChexSystems, to track those with poor financial habits. It WILL show up when applying for a loan at a bank or credit union, so never bounce a check if at all possible. You’re better off sending in a payment that is a little late (within 30 days late) rather than risk a bounced check.
    

3. Pay bills on time. This includes your mortgage of course, but even things like utility bills, phone, or rent, if paid late will likely be reported (usually when 30 days late). While they don’t show up to improve your credit score, they can certainly damage it. Prevent blemishes on your credit report wherever possible.
    

4. Prevent any collection agency action. Whenever possible, prevent any past due amounts from going to a collection agency. They report all of their activity to credit agencies, even if it’s for a past due parking ticket! When you owe money to an entity that says they are about to turn your account over to a collection agency, one phone call explain when you will pay may prevent this. It’s worth the call to find out.
    

5. Check your credit report at least once a year. The three big reporting agencies are Equifax, Experian, and TransUnion. They are required by law to provide a free credit report upon request every 12 months. To order yours, visit their official website: www.annualcreditreport.com or make your request by phone toll-free at 877-322-8228.
    

6. Clean up your credit report. If you find errors on your credit report it’s important to take timely action to resolve them. If left too long, you lose the right to request a correction, and the negative impact can stay with you for up to 7 years! Also note, that it’s unlawful for creditors to continue reporting your past debts after they have been discharged through bankruptcy, but this occurs quite frequently. It’s up to you to verify the debts no longer show on your credit report, and we provide our clients with sample letters to request that creditors remove incorrect balances.
    

7. Avoid “credit repair” scams. No agency can “repair” your credit score or wipe out your actual credit history. The number of scams reported only grows as the number of bankruptcy filings increase, so check with us before pursuing any such offer.
    

8. Start borrowing small and visit local lenders. Large nationwide lenders often just run your social security number through their system and automatically decline your request based on a strict formula. But a local lender may be more willing if they are familiar with your employer or know you to be a regular customer (such as a hardware or furniture store). Credit unions are particularly good places to begin, as they tend to be community oriented and won’t make you feel guilty because they often deal with those who have made poor financial decisions in the past.
    

9. Get a secured credit card with money you have saved. A secured credit card requires you to keep an amount equal to your line of credit on deposit with the lender. While it might seem like it makes more sense to just use the cash, that will never help to restore your credit history. Remember, you need to request and use credit to build a credit history, and only paying by cash can’t do that. Once you open a credit card, keep a small balance and pay regularly for at least 6 months before closing it, to allow the activity to be picked up by all of the credit reporting agencies.
    

10. Apply for a loan with a co-signer. This is a great way for improving credit scores and to get credit associated with your name. If you have been successful at saving money, it may be easier to get someone to agree to co-sign a loan with you. Again, this is better than just using the cash you have saved to make a purchase, because it helps to rebuild your credit. You will pay some interest on the amount you borrowed, but in the long run it can be worth it. Take out the loan and pay regularly on it for six months, then close it early to avoid paying any more interest. Just don’t take out a loan that has early payment penalties, or you will be paying more interest than you need to improve your credit rating.

Obtaining credit should become easier and easier once you’ve accomplished some of these final steps.

But don’t fall into the trap you found yourself in before. Use credit wisely, and only when needed. Remember the good habits you established in tips 1 through 6, and keep them up!

Contact our bankruptcy attorney about improving credit scores after bankruptcy. We can show you how.