How to Build Credit After a Bankruptcy

If you’ve declared bankruptcy or are considering doing so, you already know how hopeless debt can make you feel. 

Declaring bankruptcy might feel like defeat at first, but in reality, it’s a financial clean slate. It may lower your credit score, but this impact doesn’t last forever. We’ll take a look at how to build credit after bankruptcy.

How to build credit after bankruptcy

A bankruptcy will remain on your credit report for seven to ten years, but you don’t have to wait that long to get on firmer financial footing. Here’s how to build credit faster after bankruptcy.

Take out a secured credit card

It may be difficult to qualify for traditional credit cards, so a secured credit card is probably your best option. With this type of card, you make a refundable deposit that serves as your credit line. 

Use your secured credit card to purchase groceries, gas, or another recurring expense, and pay it off every month. Eventually, the card issuer may upgrade you to an unsecured card.

Use a credit-builder app

Credit-builder apps are usually easier to qualify for than credit cards or loans from banks. With these apps, you get a small loan or line of credit. As you pay it off, the app reports your payments to credit bureaus.

Kikoff is a credit-builder app that makes improving your credit easy and affordable. We don’t do a credit check before approval, and we don’t charge interest. All you have to do is make a purchase in the Kikoff store and pay it off over time. We report your payments to all three credit bureaus.

That’s not all we offer. You may qualify for one or more of our other services, too:

• Rent reporting
• Secured credit card
• Credit-builder loans
• Debt negotiation
• Free dispute tools
• Privacy and identity protection

If you’re trying to rebuild credit after declaring bankruptcy, we’d love to be part of your journey!

Ask about becoming an authorized user

An authorized user is someone who has permission from the primary account holder to use their credit card. If you’re added as an authorized user, the cardholder’s account activity goes on your credit report. This can be helpful if the cardholder makes payments on time and uses credit responsibly.

Don’t ask to become an authorized user unless you trust the account holder. Otherwise, you might cause further damage to your credit.

How bankruptcy affects your credit score

If you are declaring bankruptcy because you are unable to make debt payments, your credit score is probably pretty low already. Closing your accounts during the bankruptcy process can lower your score further. It’s not unusual for credit scores to drop by 100 to 200 points after declaring bankruptcy. 

Bankruptcy also means that you can no longer pay your debts according to the original agreement. The bankruptcy itself will appear on your credit report, too, and act as a red flag to lenders.

However, the exact impact of bankruptcy on your credit depends on whether you file Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 vs. Chapter 13

Chapter 7 bankruptcy is designed for those who have limited income, few assets, and mostly unsecured debt. If you declare Chapter 7 bankruptcy, some of your assets may be seized and sold, but eligible debts will be discharged. Chapter 7 bankruptcy stays on your credit report for 10 years.

Chapter 13 bankruptcy involves reorganizing your debts instead of discharging them. You’ll create a plan to repay most of your debts in three to five years, and your assets will not be seized. Once you complete your payment plan, the remaining debts will be discharged. Chapter 13 bankruptcy stays on your credit report for seven years.

What to do immediately after bankruptcy is discharged

You can start rebuilding your credit immediately after your bankruptcy is discharged by following these steps.

Keep copies of documents

Gather your discharge order and other bankruptcy-related documents and keep them in a safe place. You may need them to prove that your debts have been discharged.

Review your credit report

About one to two months after your bankruptcy discharge, get a copy of your credit report to verify that all eligible debts have been dismissed. No post-filing debts should be listed as late. If debts that should have been discharged are still being reported as late, you should dispute them with the credit bureaus.

Start taking steps to rebuild your credit

Review your finances and create a budget with the goal of avoiding accumulating debt, especially debt with high interest rates. Get to work on rebuilding your credit through a secured credit card, a credit-builder app, or another option.

Common mistakes to avoid

As you prepare to build credit after bankruptcy, you should be aware of these common mistakes.

Using too much available credit

After you declare bankruptcy, it’s especially critical to avoid racking up more debt. Otherwise, you might find yourself in the same situation a few years down the line.

If you take out new credit cards, you should pay them off in full every month. Carrying a balance will impact your credit score, making it much harder to build credit after bankruptcy.

Applying for too much credit at once

Applying for new credit will usually trigger a hard inquiry into your credit report, which drops your score by a few points. However, if you have multiple hard inquiries very close together, your score may drop more dramatically.

When lenders see that you have applied for several credit cards or loans in a short time, they may think you are financially overextended and desperate for credit, so you’re more likely to be denied.

Falling for credit repair scams

Unfortunately, there’s an entire industry of people who prey on those who have recently declared bankruptcy. Credit repair scammers charge large upfront fees and claim that they can remove negative items (and maybe even your bankruptcy) from your credit report. Don’t fall for it!

Start building credit today with Kikoff

After bankruptcy, it’s important to get off on the right financial foot. Kikoff can help you do that. If you want to reestablish a positive credit history, get started with us today!