Ways of Building Credit After Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is a way for consumers to erase their debts, wherein they are no longer liable for these balances. While a bankruptcy can ease financial worries, a bankruptcy severely impacts your credit rating, and it can take years to recover. Despite the initial drop in your credit rating, there are several ways to rebuild credit after bankruptcy.

Apply for Credit

Applying for a new line of credit may appear impossible after a Chapter 7 bankruptcy. However, obtaining credit is the only way to build credit. And despite a bankruptcy, some banks are prepared and eager to offer loans and credit cards to people immediately after a discharge. Granted, you won't receive the best terms or rates on these loans. However, these types of loans can help get your foot in the door and put you on the path toward better credit.

Bad credit auto lenders are available to provide you with a new auto loan, and numerous banks offer secured credit cards, which require an upfront security deposit and generally feature a monthly and one-time setup fee.

Organize Your Finances

Acquiring a new line of credit is only one aspect of building good credit after a bankruptcy. Once you have these credit cards or loans, you need to make timely payments. It takes time to fix your credit after a discharge. Even so, every payment you make to creditors on time adds points to your credit rating, whereas late or skipped payments cause further damage.

Getting into the routine of paying creditors on time requires organization. You need to be aware of your due dates and plan to pay creditors several days in advance. Online payment forms add to the convenience, and you don't have to worry about payments arriving late or getting lost in the mail.

Manage Debt

High debts and the inability to repay these debts often contribute to bankruptcies. What's more, having excessive credit card balances reduces your credit rating. Building credit after a bankruptcy requires careful debt management. Not only do you want to pay your bills on time, but you want to keep your debts low to help increase your score. Maxed out accounts or having balances close to your credit limit hurts your score. Start anew and plan to pay off any new charges at the end of each billing cycle.