How to build your credit back up after bankruptcy

Between the still-high unemployment rate and a lack of available jobs, consumers are having a tough time finding sources of income. Financial difficulties are becoming more prevalent these days, and many consumers are trying to find a way to avoid them. But sometimes these troubles are too much and people must resort to other measures. Bankruptcy is a safety net for those that are in financial trouble and many Americans choose this route to save them from crippling debt. The U.S. Bankruptcy Court said that more than 1.2 million people filed for bankruptcy in 2012.

Bankruptcy hurts your finances but it also plays a part in how your credit score turns out. Craig Watts, public affairs manager for Fair Isaac Corp, told Market Watch that banks are very particular about someone’s credit, but it is possible to improve your score after filing.

“Nowadays, lenders pay greater attention to other factors,” Watts said. “If you mind your Ps and Qs after the bankruptcy, you can restore your credit rating once the bankruptcy data finally falls off your credit report.”

Falling into bankruptcy might feel like the end of the world, but it is not as bad as many think. Improving your credit may take awhile, but there are ways for you to do it if you are careful.

What to know beforehand

After you file for bankruptcy, it is important to know that it will stick with you for some time. A bankruptcy filing could stay on your credit report for up to 10 years. Be aware that your credit score will be fairly low after filing. Improving your score will be an uphill battle, but it is not unattainable.

Look over your history

Your first step on the road to recovery is to run a credit report. A credit report will give you a recap of your credit history with explanations of what everything means. If a certain part of your credit is particularly bad, this is the area you will need to improve on. As you peruse

through the report, look for any errors or discrepancies. If you believe that there are any mistakes on your credit score, you can file for an appeal to make changes. After you have gone over and understand your history, it is time to begin the credit repair process. Your first instinct may be to close accounts or cut up credit cards, but that will be counterproductive.

Secured card

Using a credit card might seem impractical, but usually doing this is the best way to improve your standing. An easy way to start repairing is to get a secured credit card. The process of using a secured card involves giving a bank a set amount of cash in return for credit. For example, if you give the bank $250, they will give you a card with $250 worth of credit. By trying this option, you can continue to build credit and limit your spending. This type of credit card is available at many banks, but make sure they will report the activity to credit agencies.

Build up trust

By using a secured credit card, you slowly build up credit trust with a bank. As you show a bank that your credit is trustworthy, you can start applying for normal lines of credit and cards, though this may require a bit of patience on your part. Generally, banks like to see 12 to 24 months of good payment history on a secured credit card before they issue you another line of credit.

Payment schedule

After you are qualified to use a credit card again, it’s imperative that you follow all the rules of the card. Making your payments on time will help you with your score and show credit agencies that you are accountable.Keep in mind payment history accounts for 35 percent of credit score. It might be a little easy to forget about paying on time, but making appropriate payments will make all the difference in the world. A helpful tool to remind you about payments is to make a calendar or set up automatic payments. Making little improvements over time makes a big difference.