Getting Your Credit Back on Track After Bankruptcy

Filing bankruptcy can affect your credit more than almost anything else, but that doesn't mean you should avoid bankruptcy if it's the best solution to get your finances back on track. Bankruptcy can be the perfect opportunity to start over and rebuild your credit. Here's how you can do it.

Make sure your bankruptcy is reported correctly.

Order copies of all three of your credit reports. You can use AnnualCreditReport.com if you haven't already received a free credit report in the past 12 years. Otherwise, you can purchase all three credit reports from any of the three bureaus. With your credit reports in hand, review carefully to make sure your bankruptcy is reported accurately. Accounts that were discharged should be reported that way. You can dispute any errors with the credit bureaus, providing a copy of your bankruptcy paperwork if necessary.

Get new credit.

Filing bankruptcy may have left you without any open, active accounts with positive payment history. That means you'll need to start building up your credit history with new accounts.

It's normal to have trouble getting approved for new credit after bankruptcy. So you'll have to explore some slightly non-traditional options. A secured credit card is a great place to start. You'll make a deposit as low as $200 to secure your credit limit and use the credit card normally to start rebuilding your credit.

Though you can get your foot in the door with a low security deposit, a higher security deposit will get you a higher credit limit which looks better on your credit report.

Now's the time to start practicing good credit habits. Only charge what you can afford to pay off and pay your balance in full and on time each month.

As an alternative to getting a secured credit card, you may be able to have someone make you an authorized user on one of their accounts. You don't need to have a credit card for the account, but being made an authorized user will give your credit report a new account with a long credit history. Just be sure there are no late payments in the account's history to avoid damaging your credit score.

You can keep track of your credit score progress by signing up for a credit monitoring service. Keep in mind that your credit score won't shoot up overnight. It will slowly improve over time as your bankruptcy gets older and you add more positive payments to your credit score.

Be careful not to open up too many credit cards, especially as you see progress with your credit score. Too many credit cards can affect your credit score and put you at risk of getting into credit card trouble again.

Practice good financial habits.

Your financial habits have a direct impact on your credit. You need to manage your finances wisely so you can afford to pay your bills on time each month. Being responsible also means avoiding taking on more debt than you can handle.

If you don't already have one, create a budget for your monthly spending so you're making the most of your income. You may have to reduce your spending to comfortably afford all your expenses and put some money away for a rainy day.