Do Over: Your Credit After Going Through Bankruptcy

Going through a bankruptcy can be one of the most emotionally and financially disruptive experiences of your life. Once your debt is discharged, however, the hard work begins. It’s time to take steps to help your credit recover from the trauma of bankruptcy.

Check your credit report and update it. The bankruptcy that freed you from an unmanageable debt will appear on your credit report for up to 10 years, depending on the type of bankruptcy proceedings you went through. However, that court action does not automatically update your credit report to show past-due balances as zero. Check your credit report and if you find the discharged debt still appearing as “past due” on your credit report, send the credit reporting agency a written request to update your credit file. Include an explanation that the debt has been discharged through bankruptcy, and provide documentation of the bankruptcy.

Lay a good credit foundation. After going through bankruptcy, you may think you’ll never want to use credit again, but it’s very difficult to live without it. It will take time and work to rebuild your credit worthiness in the eyes of creditors. Start by paying bills promptly, from your cellphone and utility bills to your rent and car payment (if you were allowed to keep it after the bankruptcy).

Budget and save. Even if you had a budget before your bankruptcy, you’ll need to reassess it. If you didn’t have one, it’s essential to begin budgeting. Gather your monthly bills and build a budget based on your actual monthly income. Remember to include paying yourself in your monthly expenses. Saving toward retirement and building an emergency fund will help give you peace of mind about your financial security, so save some money from every paycheck.

Slowly reintroduce credit into your life. Rebuilding your credit does not mean going back into debt. Once you’ve established a good budget and some savings, you can consider getting a single credit card. You may need to start with a secured card that comes with higher interest rates or fees if your bankruptcy makes it difficult to get a standard credit card. Use it sparingly for essential big-ticket purchases or necessary online shopping, and pay off the entire balance every month. This kind of credit card use can help you build a good payment history and show a credit to debt ratio of zero – two behaviors that can boost your credit score.

Bankruptcy shouldn’t mean the end of your credit. By acting decisively and immediately, you can start your credit back on the path to great, and regain control of your financial life.