Rebuilding Credit after Bankruptcy

The good news is that your credit will take care of itself.  If you pay your bills on time and don’t over load yourself with new debts, your credit will heal itself.  The amount of time it takes to repair your credit is dependent on you.  It takes 10 years for the Chapter 7 bankruptcy to clear off your credit report for good.  So the worse case you wait 10 years, but the good news is that you can repair credit much faster by taking a few simple steps. 

• Pay whatever bills you have on time all the time.  You no longer have any margin for error.  I don’t think that this should be too difficult since you no longer are overwhelmed by debt. 

• Get a small credit card or a store card.  Use it a little but make sure you pay it off every month

            Perhaps buy a single tank of gas a month on it.  Whatever you do make sure you put the cash away to pay it off you can’t afford to fall back into the same situation.  This will take discipline but it is worth the effort. 

            Establishing good credit takes work but it is fundamentally about having a low debt burden relative to your income and paying your bills on time.  Once the bankruptcy is complete you should have already reduced your debt burden.  All that is left is to pay your bills on time.

            You are better off not having credit than abusing credit.  It’s up to you, but if you aren’t sure that you can handle a credit card then don’t get one.  Don’t go finance a car at 18 percent interest.  Make smart decisions and you will be able to buy a car for cash or at the very least get a reasonable interest rate.  If you are considering a big purchase, put the projected payment amount away for a couple of months before hand.  This will do two very important things for you.  One it will show you if you can afford the payment.  If you are having trouble saving the amount of the payment then it is probably too high.   You should also save and put away the amount of an increase in costs associated with the purchase (extra insurance, fuel, etc.)  The second reason to do this is it creates a buffer for you if something changes.  If you keep two months expenses on this purchase in a separate account the money will be there if an emergency occurs. 

            Finally before you buy anything or get any credit, do yourself a favor.  Make sure you understand how much you make and where it goes.  Write a budget, they may not be fun but a good budget is almost guaranteed to improve your credit and your life over the long run.  You will be able to see what you can and cannot afford.  You will be able accurately understand your true financial picture.  This kind of understanding is essential to avoid the mistakes that got you to where you were. 

            You’re done now, you can’t change the past but you can make sure it doesn’t happen again.  I wish you the best of luck and know that you can get through this process.  I have helped hundreds through it and my colleagues have helped millions.  There is no reason that a bankruptcy should ruin your life.