How to Build Your Credit After Bankruptcy
It's true that bankruptcy, repossession, and foreclosure all hurt your credit – a lot! You may be worried that you won't be able to re-establish credit for a long time. Thankfully, a bad credit rating doesn't have to stick around forever if you take active steps to rebuild your credit. You won't have squeaky clean credit anytime soon, but you will begin to see improvement.
Here are some recommendations to help you start over after bankruptcy:
- Use some credit: While you may never want to use credit again, to rebuild your credit rating, you must use some credit. However, there is no need to carry a balance from month to month. Having four opened credit accounts that have remained current on payments can help to rebuild your credit.
If you are still in a Chapter 13 plan, where you pay back some of your debts over time, do not open any new accounts without first consulting your attorney. - Make payments on time: Make all of your payments on time! If you are in a Chapter 13 plan, and you are having difficulty, call your attorney immediately. If there are any debts you kept out of your bankruptcy, such as an auto loan or student loan, stay current on those payments.
It is important to understand how long negative items can be disclosed on your credit report:
- Bankruptcy: All bankruptcies can legally be reported ten years from the filing date (not the discharge date, which is the date when the bankruptcy is completed). With Chapter 13 bankruptcies, credit reporting agencies will voluntarily remove it seven years from the date of filing.
- Collection or charge-off accounts: Seven and a half years from the date the original account became delinquent (whether it has been paid or not).
- Civil suits or civil judgments: Seven years from the date of entry into the suit or judgment, or the current governing statute of limitations, whichever is longer.
- Unpaid tax liens: Indefinitely if the tax lien remains unpaid.
- Paid tax liens: Seven years from the date the lien is paid or settled.
- Any other negative information (including late payments): Seven years from the date the payment was late.
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About the Author
Gerri Detweiler is a longtime consumer educator and the author or co-author of five books, including Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. Union members receive a 50% discount on the eBook.