How to recover from bankruptcy

Steps to rebuilding your credit

You can get back on track after filing for bankruptcy. While you're recovering from bankruptcy, the financial moves you make will impact how fast your credit score improves. Here's how to recover from bankruptcy quickly and safely. 

• Make sure credit reports are up to date. Within a few months of your bankruptcy being finalized, check your reports to make sure every discharged debt or closed account is properly reported. You can request one free report per year from each of the three major credit-reporting agencies (Equifax, Experian and TransUnion) by visiting www.annualcreditreport.com.
• Build bankruptcy protection. Address the reasons why you filed for bankruptcy in the first place. If you have difficulty keeping your spending within your means, you may benefit from using a budget. Another smart move is an emergency savings fund to help you weather unexpected financial hardship. You can set up Automatic Transfers from your checking account to a savings account. If money is tight, take a part-time job and use that paycheck to jumpstart your emergency savings fund. 
• Pay your bills on time. Your bill-paying habits account for 35% of your credit score. That's the single biggest factor in your credit score, so making on-time payments will improve your score over time. That's why meeting payment dates is a vital step in recovering from bankruptcy.
• Use new credit wisely. Your bank may have products or services to help you rebuild your credit. You may qualify for a secured credit card by depositing money to cover the credit line. Make sure your secured card reports your payment history to the credit bureaus, as not all secured cards do this. Use your card every month, but try to use only a fraction of your available credit limit. That's a signal to creditors that you're in control of your spending. Most important, make sure the bill is paid on time. 
• Consider applying for a loan after your credit score has improved. If you want to rebuild your credit score, you'll have to get and use credit responsibly. Two years after bankruptcy, you are eligible for a FHA-insured loan, assuming you meet qualification rules. Some lenders may qualify you for a car loan sooner than that, though probably at a high interest rate. If you anticipate you will want to apply for a mortgage in the next few years, saving for a down payment is another smart step to alleviate a lender's concerns.

While the formal record of a bankruptcy remains on your credit report for 7 to 10 years, its impact recedes over time. Your bankruptcy is a reflection of the past. The future is completely within your control, and how you handle your finances going forward will tell your creditors whether you in fact are a good "risk" to do business with. By following these steps to recover from bankruptcy, you improve your chances of increasing your credit score over time, and having a better financial future.

What's next? How long does it take to rebuild credit?

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