“There are several ways to slowly build credit after bankruptcy,” says Bert Briones, an Orange County, CA bankruptcy attorney and Founding Partner of Red Hill Law Group, PC. Here are some ideas and suggestions:
Get a Secured Credit Card
For consumers who have recently gone through bankruptcy, a good choice would be to obtain a secured credit card. Secured cards require the applicant to open a bank account with a balance that matches the credit limit of the secured credit card. Typically, the limit will amount to $500 maximum, but be prudent about the usage and limit your charges to no more than approximately 30% of your credit limit. Focus on light, regular use of the card to help rebuild your credit.
It is important that your credit card gets reported to the credit bureaus, but try to prevent having it reported as a secured card. Also, don’t just grab any secured card that is available. Take a close look at possible huge upfront charges and annual fees. In addition, ensure that your payment history is being reported to the three major credit bureaus: Equifax, Trans Union, and Experian.
Open a CD
Using a certificate of deposit (CD) as a method to rebuild credit is another option. A small personal loan is used to open a CD for a minimum of one year, and the loan payments that are made on-time will show good credit history during the length of the certificate. This strategy is helpful to re-establish credit without having the temptation of a credit card.
Student loans (not typically dischargeable in bankruptcy), can also be used to rebuild your score with timely payments and possibly paying more than you owe, if possible, will help even more. Other types of installment loans include auto loans (expect a very high interest rate initially), and a high-rate mortgage, sometimes available in a little as six months after your bankruptcy case is closed. Just make sure you can really afford a home before buying it.
- Pay every bill on time
- Check your credit reports regularly
- Save as much money as possible
- Minimize the number of inquiries on your credit report
“Nothing is forever”, says Briones. “Some folks apply for a secured credit card and are offered an unsecured card, but be very careful with it. Adopt responsible credit habits and make wise choices.”