7 Easy Ways To Rebuild Your Credit After Bankruptcy (2024)

The decision to file for bankruptcy is often a difficult one—and the complex legal process can not only be challenging but damaging to your credit. However, the effect of bankruptcy on your credit report isn’t forever and will last for seven or 10 years, depending on the type. What’s more, the impact of bankruptcy decreases over time and there are a number of ways to improve your score in the meantime.

Forbes Advisor is here to help. We’ve outlined the steps below to take back control of your finances and get on the right track after a bankruptcy.

1. Check Your Credit Report

If you’re trying to repair your credit after bankruptcy, start by familiarizing yourself with your credit report. All consumers can access a free copy of their credit report through AnnualCreditReport.com. Free reports are typically only available once a year—but in the wake of the Covid-19 pandemic, consumers can access free weekly reports through April 20, 2022.

Understanding what makes up your credit score can make it easier to make targeted improvements and provide insight into why your score is or is not increasing. You’ll also be able to spot any errors that are bringing your score down—such as incorrect account information or inaccurate public records.

Reviewing your credit report can also help you confirm that your bankruptcy is removed from your report as soon as possible—after seven years for a Chapter 13 bankruptcy and after 10 years for a Chapter 7.

2. Monitor Your Credit Score

Bankruptcy will likely cause an initial drop in your score of 100 to 200 points or more, though this varies and the effects improve over time. Checking your credit score from month to month is a critical step in improving your score after bankruptcy. To do so, create an account with a free online service; several credit card companies also offer customers free score updates.

Once your accounts are discharged during the bankruptcy process, check your score to confirm that these changes were accurately reported.

To avoid further decreases, monitor your credit score for any red flags that may signal identity theft or other issues. This may include fraudulent loan applications made in your name, inaccurate account statuses or civil suits or judgments you weren’t involved in. While score increases may come slowly, checking your credit score regularly is also an effective way to stay motivated as you take steps to improve your credit habits.

3. Practice Responsible Credit Habits

Your credit score will improve as your bankruptcy fades into the past, but healthy financial habits are necessary to truly rebuild your credit after bankruptcy. Consider these recommendations to get started:

• Make consistent, on-time payments. Payment history accounts for 35% of your FICO Score calculation, so it’s imperative that you make on-time payments when rebuilding credit after bankruptcy. In addition to making consistent, on-time payments, stay on top of other bills, like utilities, because these can also improve your score via services like Experian Boost.
• Reduce your credit card use. Depending on how you arrived in bankruptcy, one of the biggest risks can be falling into the same habits that led you into financial trouble before. Reducing your credit card use—or avoiding them altogether—can temper the temptation to spend and reduce the likelihood of this happening.
• Keep your credit balances low. The balance you owe makes up 30% of your FICO Score calculation. For this reason, keeping your credit balances low is integral to rebuilding credit after bankruptcy. To do so, try to reduce card usage and aim to pay off balances each month.
• Build an emergency savings fund. If possible, aim to earmark money to build an emergency savings stash so you’re covered for unexpected expenses like car repairs and medical bills. This can help you avoid incurring future debt that can slow or even reverse efforts to rebuild your credit.
• Take your time. Be patient. The amount of time it takes to rebuild your credit after bankruptcy varies by borrower, but it can take from two months to two years for your score to improve. Because of this, it’s important to build responsible credit habits and stick to them—even after your score has increased.

4. Get a Secured Credit Card

Reducing your dependence on credit cards can be an important step toward rebuilding credit after bankruptcy. However, the strategic use of secured credit cards can also help you begin to repair your trustworthiness in the eyes of lenders.

Taking out a secured credit card requires making a refundable security deposit and then borrowing against it. While these cards tend to come with high interest rates, if they report to all three credit bureaus, they’re a great option to show responsible credit behavior until you’re better qualified for a traditional card with more competitive terms.

Some secured cards even allow you to “graduate” to an unsecured card after consistent on-time payments. This is a benefit since you won’t have to apply for a new, unsecured card when your credit improves,

Keep in mind, however, that applying for a secured card doesn’t guarantee acceptance, so take time to research the provider’s requirements before applying. If possible, choose a provider that offers prequalification so you can see whether you’re likely to qualify before agreeing to a hard credit check that can further damage your score.

5. Consider a Credit-builder Loan

Credit builder loans are another way to build your credit without having to qualify for a traditional loan. With a credit-builder loan, the lender holds a certain amount of money in a secured savings account or certificate of deposit in the borrower’s name. The borrower then makes monthly payments—including interest—until the loan is repaid.

Depending on your bank, you may also have the option of a secured loan, where you borrow against money already in your savings account. As with traditional loans, the financial institution reports credit-builder loan payment activity to the major credit bureaus, which can improve your score over time.

6. Utilize a Co-signer

If you struggle to qualify for a loan or rental agreement after filing for bankruptcy, a co-signer can help you qualify. A co-signer is someone who agrees to pay back a loan if you, the primary borrower, fail to do so. The co-signer doesn’t have any right to the loan funds or financed property, but they will be responsible for the outstanding loan balance if you fail to make on-time payments. Likewise, their credit score will also be damaged if you miss payments or default.

For these reasons, you should carefully consider who you ask to serve as your co-signer and be understanding if they decline to do so. To find a co-signer, ask a friend or family member who is financially stable and then provide an easy out—just because someone is able to serve as a co-signer doesn’t mean she is willing to do so.

7. Ask to Become an Authorized User

Getting someone to co-sign on a loan may be a tall order, but building your credit as an authorized user on someone else’s credit card is often more feasible. Being an authorized user involves having a card in your name that’s attached to another borrower’s account, not your own. You’ll be able to use the card for purchases without having to qualify for the account on your own merits—but you won’t be able to modify the account.

Credit card payments will show up on your credit report, so if these payments are made on time and the credit utilization rate stays low, your score will improve over time. Just make sure the credit card company reports authorized user payments to the three main credit bureaus so you have the greatest chance of increasing your score. While this isn’t as impactful as other methods of increasing a credit score, it can still be helpful as part of a larger strategy.

How Long It Takes to Rebuild Your Credit After Bankruptcy

Perhaps the most frustrating part of filing for bankruptcy is how long it takes to rebuild your credit after the fact. The amount of time a bankruptcy stays on your credit report varies depending on the type of bankruptcy. Beyond that, the credit repair process depends largely on whether a borrower takes intentional steps to actively improve his score.

How Long Does It Take to Rebuild Your Credit After Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy stays on the borrower’s credit report for 10 years. This means that after 10 years, all records of the bankruptcy must be removed from your credit report. That said, the impact the bankruptcy has on a credit score decreases as time passes—due in part to the immediate reduction in the consumer’s debt-to-income (DTI) ratio, which is how much you owe in relation to the amount of available credit you have. Because of this, you may start to see improvements in as little as one to two years after discharge.

How Long Does It Take to Rebuild Your Credit After Chapter 13 Bankruptcy?

Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy stays on a consumer’s credit report for just seven years. In general, though, it takes anywhere from 12 to 18 months to start improving your credit score after your Chapter 13 bankruptcy is discharged. Many borrowers can refinance their restructured debt after 18 months.