Depending on the chapter of bankruptcy, your bankruptcy filing will be on your credit report for up to a decade after filing. This leads many to believe that bankruptcy will do permanent damage to their credit score and that their credit score will cut them off from future home loans and other opportunities. Is it possible to rebuild your credit score after bankruptcy?
Rebuilding your credit starts with making regular payments.
While bankruptcy may offer forgiveness for some debts, your bankruptcy may not impact other monthly payments. While your income does not factor into your credit score, lenders often consider your debt-to-income ratio as part of your application for a credit card or loan. As a result, paying down your existing student loans, alimony costs and other debt can help you reassure lenders that you can keep up with future bills.
Apply for new credit to show lenders that you are responsible.
Getting a line of credit is often an essential step toward financial health. However, you may find that many credit companies will not accept your application, and the options available to you may involve higher fees, interest rates or risk. You should use the options available to you to rebuild your credit score and consider other options when your score improves.
Options to consider include:
- Secured credit cards or loans—Secured credit cards and loans use money or assets to back the line of credit, making it easier for those with low credit scores to apply. However, they can also involve higher fees and interest rates.
- Co-signed credit cards or loans—Asking a loved one to co-sign your line of credit allows you to benefit from the strength of their credit score. However, this option could damage your relationships if you cannot pay your bills because the person who co-signed is responsible for your debt.
Once the lender approves your application, make regular payments on time and pay your balance in full if possible. By keeping your balance low and making regular payments, you can improve your score enough to apply for other lines of credit in the future.
While rebuilding your credit score will take time and careful planning, you can move forward from bankruptcy with the foundation for a stronger financial future.
