How to Reestablish Your Credit After Bankruptcy

One of the many myths surrounding bankruptcy is the idea that you will not be able to repair the damage to your credit rating.  While bankruptcy is the single worst thing you can do to your credit, it is not a life sentence.  There are ways to repair the damage and get your finances healthy again.  Here are four ways you can reestablish your credit after declaring bankruptcy.

Photo by Jewish Women’s Archive via Flickr

1.  Try a secured credit card.

Secured credit cards are not like your average credit card.  In order to use one of these cards, you must make an initial deposit that will act as your credit line.  This makes it impossible for you to default on the debt.  Some secured credit cards will eventually convert to an unsecured card, once you have established a history of good payments.  These cards often have high annual charges and fees, but they go with the territory of poor credit.  It is important to note that not all secured cards report to the credit bureaus, so choose a card that does — otherwise you’re not helping your credit rating.

2.  Accept a high-rate card.

Even after bankruptcy, it is still possible to get approved for an unsecured credit card, but you will pay for the privilege.  Since you have not proven yourself to be a great risk, you will likely only have offers from high fee and high interest rate cards.  With a good money plan, you can navigate these high-interest rate cards so that they will help your credit without hurting your bottom line.  Only charge purchases that you can pay for immediately, and make sure you pay your bill each month.  If you do this, you’ll prove yourself worthy of good credit and avoid the interest — meaning your only credit expense will be the yearly fees.

3.  Use a retail credit card wisely.

If you can handle the temptation of owning a retail credit card, you can reestablish your credit with a purchase using a store credit card.  These cards are generally easier to get, even with poor credit, but they offer terrible interest rates — averaging about 25%.  However, if you have the cash to make a large purchase, you can apply for one of these cards, make your purchase, and pay it off before the interest kicks in.  Since many of these cards also offer some percentage off of your purchase, you can potentially save money while you are re-building your credit.

4.  Take out a small personal loan.

If you simply cannot trust yourself with a credit card, another option is to take out a small personal loan and use the cash to open a savings account. You can find a bank that offers decent interest rate.  The key is to keep this account separate from everything else. Use the money in this account to help you pay your loan payments. As long as your make your payments on time, your credit will improve as a result.

It can be demoralizing to declare bankruptcy, but you can rebuild.  You just need to remember to own your money and not let it own you.  These methods will only work if you’re willing to make a budget and stick to it.

About the Author

By , on Oct 25, 2011
Phil Taylor
Phil Taylor is the author of PT Money, a personal finance blog about saving money, making extra money, credit cards, coupons, living frugal, debt payoff, and more.

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Leave Your Comment (4 Comments)

  1. Pinyo says:

    @Jason – Reestablish your credit after bankruptcy is probably not an immediate concern. But it stays on your record for 7-10 years, so it is important to understand your options.

    @Matthew C – The are just about equally bad. Debt settlement is probably a tiny bit better since it shows that you’re at least trying to work something out with your creditors. Both options stay on your record for at least 7 years.

    @Cherleen – Good advice.

  2. Cherleen says:

    After declaring bankruptcy, we should have learned one of the most important lessons in life and be more wary of his finances. Restart life by living frugally, working harder and saving more.

  3. Matthew C says:

    Which affects your credit more, filing for bankruptcy or debt settlement? When you do debt settlement you essentially stop paying your credit cards. Don’t you think that will affect your credit worse then filing for bankruptcy?

  4. Jason Stude says:

    LOL…I don’t think that necessary to Reestablish my Credit After Bankruptcy. I don’t have enough money to Re-establish now. 🙂 poor me!

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