There’s nothing easy about declaring bankruptcy.
From the stress that precedes the decision to the restrictions that come after, it’s a long road for both your financial and emotional health.
A Chapter 13 bankruptcy will stay on your credit reports for seven years, and a Chapter 7 will stay on your reports for 10 years.
But, while it might take a decade for your credit reports to be free of your bankruptcy, you don’t need to wait that long to rebuild your credit.
A bankruptcy doesn’t have to be a life sentence: Here’s how to start improving your credit scores today.
3 Steps to Rebuild Your Credit After Bankruptcy
Before applying for a credit card after bankruptcy, you should examine why you experienced bankruptcy in the first place — and then begin to repair your credit history and financial habits.
1. Evaluate Your Financial Habits
The first step? Take a good, hard look at why it happened.
Though bankruptcy is sometimes unavoidable, we all have habits we could improve (or lose altogether). Whether it’s forgoing shopping, purchasing health insurance, or building up an emergency fund, consider what you should do to avoid going bankrupt again.
And, if you haven’t already taken your debtor education course, look at it as a learning opportunity rather than just a legal obligation. By taking it seriously, you’ll learn skills — such as budgeting and using credit wisely — that can help you avoid financial trouble in the future.
2. Check Your Credit Reports
Next, you should pull your credit reports from three credit bureaus — Experian, TransUnion, and Equifax — to verify that all delinquent accounts have been removed. (You can get one free report per bureau per year at AnnualCreditReport.com.)
Any affected accounts should indicate they were “included in bankruptcy” and should show no balances, past due amounts, or late payments after the bankruptcy filing or discharge date.
Since you’ll need to wait for your credit reports to update, here’s when to check:
- Chapter 7 bankruptcy: 90 days after your bankruptcy filing
- Chapter 13 bankruptcy: 90 days after your bankruptcy discharge (which can take three to five years)
If you come across errors, you’ll need to dispute them directly with the credit reporting agencies. You should wait to apply for new credit until they’re cleared up, as credit card companies will likely deny an applicant with delinquent accounts.
3. Add New Credit
Though you might be wary of credit after bankruptcy, the best way to get back on track is to get back on the horse. New and positive uses of credit won’t erase your bankruptcy, but they will help offset its negative damage.
A few easy strategies to boost your credit if you have low scores:
- Become an authorized user: If your family members have well-managed credit cards, you could ask them to add you as an authorized user — without ever giving you a physical card. As long as the credit card account is used responsibly, it will add a new record of on-time payments to your credit reports.
- Apply for a credit builder loan: Available from companies like Self Lender, these loans essentially involve paying yourself back over a period of time. Your payments are reported to the credit bureaus, helping you establish a positive credit history.
Then, when you’re ready, it’s time to apply for a new credit card.
Q&A Video: How Do I Rebuild My Credit After A Bankruptcy?
How to Get a Credit Card After Bankruptcy
When you apply for a credit card after bankruptcy, you’ll most likely start with a secured card.
As opposed to a typical (unsecured) credit card, these require a deposit — which will usually serve as your credit limit — to “secure” your account. If you put down a $500 deposit, for example, you’ll only be able to spend $500 on the card before you’ve maxed it out.
Secured cards generally come with fees and high interest rates, and most don’t offer rewards like points or cash back. But they’re still a great way to build your credit, because, unlike prepaid debit cards, most secured cards report your payments to the credit bureaus.
Applying for credit cards dings your credit scores, so you should be selective about which card you apply for — and make sure you have a good chance of getting approved.
To get an idea of which cards you might be a fit for, check your credit scores and look for pre-qualified credit card offers in the mail or online. And, before filling out an application, read the fine print to ensure the credit card issuer doesn’t have any restrictions when it comes to bankruptcies.
8 Best Credit Cards to Get After Bankruptcy
Here are our recommendations for post-bankruptcy credit cards.
Our advice is to get one with low or no annual fees, avoid interest by paying your bill in full each month, and, above all, pay your bill on time, every time.
You should also check how many credit bureaus the card reports to; the more the better. The major credit card issuers will report your card activity to all three bureaus. (If a card doesn’t report to any, don’t bother applying, as it won’t help build your credit.)
Best Secured Credit Cards for Bad Credit
Earning rewards, no annual fee
Low security deposit
High credit limit
No bank account required
No credit check required
Various card options — check here.
Military members and families
Best Unsecured Credit Cards for Bad Credit
No credit history
No annual fee
If you have no luck with these cards, you can consider cards that don’t require a credit check. We do not recommend these cards because they generally have high fees and bad reviews for poor customer service. If you can’t get approved for any secured cards and can’t become an authorized user on someone else’s account, though, these may help you establish some credit history to qualify for a better card:
- First Progress Platinum Elite Mastercard® Secured (Review): $29 annual fee, security deposit/credit limit of $200 to $2,000
- OpenSky Secured Visa Credit Card: $35 annual fee, security deposit/credit limit of $200 to $3,000
- Primor Secured Visa Classic Card (Review): $39 annual fee, security deposit of $200 to $5,000
If you do use one of these cards, we recommend paying your balance in full well ahead of the due date. Some consumer complaints revolve around payment processing time — so don’t wait until the last minute.
How to Avoid Bankruptcy in the Future
Opening a new credit card is only one piece of the puzzle when it comes to rebuilding your credit.
To make sure you don’t fall into credit card debt or bankruptcy again, you need to develop responsible credit management habits.
Here are three basic rules you should follow:
- Make on-time, in-full payments each month: Set up autopay, or create calendar reminders. By paying your balance in full each month, you can completely avoid interest charges on purchases with most cards.
- Monitor your balances carefully: For the best results, limit your credit card balances to 10% of your available credit.
- Limit your credit applications: Open new accounts gradually — and only as needed.
You don’t need to wait seven to 10 years to improve your credit. Follow the guidelines above, work on building good financial habits, and little by little, you’ll bring your credit — and your life — back to where you want it.