Bankruptcy not only exacts an emotional toll, it leaves a black mark on your credit history that remains for ten years after you file. But how can you move out from under the shadow of debt and back into the mainstream system of credit and lending? Here are four ways to rehabilitate your credit, even after you’ve filed for Chapter 13 or Chapter 7 bankruptcy.
1. Try secured credit cards
One of the easiest ways to get a credit card even with a less-than-stellar credit history is to use a secured credit card as a jumping-off point. A secured card is guaranteed by an upfront deposit (usually the same amount as your credit limit) that’s returned to you once you close the account. For example, let’s say you apply for a secured card with a $200 limit. You give the issuing bank $200 when you open the account. You then use the card normally, making charges and paying off your bills. You can’t use the $200 deposit to pay off your bill. Once you’ve built up a solid credit history with your card, you can close the account and get your $200 back.
Some lenders require you to be a year or more out of bankruptcy before they consider you. However, the Capital One Secured MasterCard is available to almost anyone, regardless of credit score or bankruptcy status. It has a $200 minimum opening deposit (lower than most), and they’ll let you pay that deposit in installments if you can’t spare the entire amount all at once.
2. Stick to a budget
It’s important that you rehabilitate your credit by establishing a solid, reliable payment history, and paying off your bills every month requires diligent financial management. People declare bankruptcy for all sorts of reasons, from overspending to medical emergencies, but by making a clear spending plan, you can help get your finances on the right track.
3. Talk to a credit union
Credit unions are not-for-profit, member-owned institutions that usually take a more holistic view of people’s credit (and personal) histories. Many offer second chance checking accounts (for those who have been blacklisted on ChexSystems); Las Colinas Federal Credit Union has such an account and is open to anyone in the U.S.
Some credit unions will be more willing to give you a loan if you talk to them about your personal circumstances, or if you go through their financial literacy training. They can help you get the lines of credit to bring your FICO score back up.
4. Don’t get discouraged
While resuscitating your credit history may seem an impossible task, keep this in mind: your FICO score is more heavily weighted towards recent payment history than past, so even if you’re coming out of bankruptcy, a strong showing now will mean more than past errors. Keep it up – now that you’ve discharged your debts, you can work on moving forward.