Rebuilding your credit after bankruptcy

Step 1: Keep your paperwork

Save your discharge paperwork, plus the list of debts included in your case. You'll need them to fix credit report errors and stop any collector who tries to collect an erased debt (collecting a discharged debt is against the law).

Step 2: Check your credit

Pull your free credit reports from all three bureaus at AnnualCreditReport.com a month or so after discharge. Every debt included in your bankruptcy should show:

• A $0 balance
• A note like "discharged in bankruptcy" or "included in bankruptcy"
• No new late payments after your filing date

If anything looks wrong, file a dispute. Make sure you include a copy of your discharge papers for the credit bureau (errors do happen, and getting them handled will bump your score a little).

Step 3: Open one or two new accounts

Your score needs fresh, positive history to grow. Thankfully, there are options for people rebuilding:

• Secured credit card: You put down a deposit, usually $200 to $500. That will be your credit limit. Use the card for a small purchase and pay it off in full every time.
• Credit-builder loan: These loans hold the money in a savings account while you make payments (they’re usually offered by local credit unions). When you're done, you get the money back, along with a record of on-time payments.
• Authorized user: You may be able to get a family member who has a good credit score to add you as an authorized user on a card, which can improve your credit.
• Rent reporting: Some services and landlords report your rent payments to the credit bureaus (but not all of them do).

Only open one or two accounts at first so you can stay current and skip unnecessary dings to your credit score.

Step 4: Pay everything on time and watch your balances

Make every payment on time (or even a little early). Set up autopay or reminders for every bill to help. Keep card balances under 30% of your limit or lower if you can. If you reaffirmed a car loan or kept your mortgage, those on-time payments help, too.

Step 5: You need an emergency fund

A lot of people end up in bankruptcy because one emergency set off a chain of debt. Even $500 in savings can keep a car repair or medical bill from going on a card. Start small and add a little from each paycheck.

What to expect along the way

A lot of people get approved for secured cards and some auto loans in the first year, although they’re often at higher interest rates.

After two years, you may qualify for an FHA mortgage if you filed Chapter 7 (with a lender's approval). In Chapter 13, an FHA loan may even be possible after a year of on-time plan payments, with court permission.

Conventional mortgages open up after a Chapter 7 discharge within about four years. For Chapter 13, the wait is often two years after discharge.

Watch for lenders who target new filers

After a bankruptcy, you may get a flood of offers. Some lenders know you can't file Chapter 7 again for eight years, which makes you a target for high-interest loans and expensive car deals. Compare every offer with what a local credit union would charge.