If you’re like most people, you’ve realized Chapter 7 bankruptcy is not the end of the road but the start of a long and positive journey.
After discharging your debts in court, you have the unique opportunity to reestablish your credit without an overwhelming financial burden weighing you down.
But that doesn’t mean you won’t have to deal with negative repercussions. According to myFICO, you’ll see a substantial drop in your FICO scores if your credit was excellent before filing and a less severe reduction if you began with lower scores. In either case, your numbers will probably be at the bottom of the 300 to 850 scale.
Thankfully, you can overcome the credit damage by implementing smart strategies. Here are nine ways to build up your credit rating after a bankruptcy.
See related: How to build credit
1. Make sure you’re zeroed out
Ashley Morgan, a bankruptcy and debt attorney from Herndon, Virginia, says the first thing to do is make sure all of the accounts you included in the Chapter 7 bankruptcy show as “zero balance due” on your credit reports.
“If there’s still an amount left on these accounts, your scores will be even lower than they should be,” says Morgan.
Pull copies of your credit reports from Experian, TransUnion and Equifax from AnnualCreditReport.com. If you spot an incorrect balance, dispute it with one of the credit reporting bureaus (it will alert the others) and include documents from the bankruptcy that indicate the discharge. When your credit reports are updated, your scores should adjust upward.
2. Carefully handle reaffirmed debts
If you left some debts out of the bankruptcy, you’re in a favorable position, says Morgan. You’re ready to use them to your scoring advantage.
Instead of having to apply for and obtain new loans and credit cards, you’ve got what you need to add excellent information to your credit reports. Payment history is the most important credit scoring factor, so respect those due dates. And if you still have a credit card, charge only what you can and will repay in full when the bill comes in.
A Chapter 7 bankruptcy will stay on your credit reports for a total of ten years, but as you supply your credit reports with evidence of responsible credit usage, your scores will increase, especially as the bankruptcy ages.
3. Apply for a secured credit card
No active loan or credit card? No problem, says Adam Selita, CEO of The Debt Relief Company.
“The best and most beneficial way to build your credit after bankruptcy would be to apply for a secured credit card,” says Selita, who explains that you can get one regardless of the bankruptcy notation or the extremely low credit scores that go with it.
Secured credit cards are collateralized by a cash deposit that usually matches the credit line. So, if you put down $500, that same amount will be your limit. Many creditors will release the money back to…