Declaring bankruptcy can be a difficult but sometimes necessary step when you are overwhelmed with debt. The bankruptcy process provides relief by discharging many types of debts, allowing you to make a fresh start financially. However, it also has significant impacts on your credit reports and scores that can make it harder to get approved for financing in the future. 

The good news is that you can rebuild your credit after bankruptcy. With some time and effort, you can demonstrate responsible use of credit and see your scores steadily improve. Follow this complete guide to learn strategies for repairing your credit post-bankruptcy.

Chapter 1: How Bankruptcy Impacts Your Credit

When you file for Chapter 7 or Chapter 13 bankruptcy, it remains on your credit report for 7-10 years. The bankruptcy filing and discharge of debt will be added to your credit history. This has several implications:

– Your credit scores will plummet after bankruptcy. Much of the impact comes from increased “derogatory marks” on your reports and decreased credit availability. Expect your scores to initially drop by 150-200 points.

– You may have a harder time getting approved for loans or credit cards. Lenders view borrowers with recent bankruptcies as high-risk. You’ll likely need to begin with “second chance” cards marketed to those rebuilding credit.

– You’ll lose your existing credit accounts. The credit card and loan accounts discharged in bankruptcy will eventually be closed and removed from your credit reports. This can reduce your total available credit.

– Bankruptcy can remain on your credit report for up to 10 years. The bankruptcy public record will be on your report for 7-10 years depending on the chapter. Other negative items may remain for up to 7 years.

While these effects can seem daunting, take heart in knowing the bankruptcy will matter less and less over time. Proactively rebuilding your credit is the next step.

Chapter 2: Obtain Your Post-Bankruptcy Credit Reports

Before starting your credit rebuild, it’s important to know what’s being reported in your credit files. Order free copies of your credit reports from Equifax, Experian and TransUnion. You are entitled to a free report from each bureau annually at www.annualcreditreport.com.

Review all the accounts and information on your reports and dispute any errors with the bureaus. Common post-bankruptcy errors include:

– Accounts that were discharged in bankruptcy but still show a balance owed.

– Incorrect account statuses (e.g. “late payment” on discharged debt).

– Public records like bankruptcy filed beyond the legally allowed reporting period.

– Wrong personal information like an incorrect address.

Submit dispute letters to the bureaus with details on the inaccuracies found. This can improve your scores and make sure only legally reportable information appears in your files.

Chapter 3: Begin Using Credit Again 

One of the keys to rebuilding credit after bankruptcy is to start using credit accounts responsibly again. However, it can be difficult to get approved for unsecured credit soon after bankruptcy. Here are some strategies to begin responsibly using credit again:

Obtain Secured Credit Cards

Secured cards require a refundable security deposit that becomes your credit limit. They are easier to qualify for post-bankruptcy and report to the credit bureaus like regular cards. Use them to make small purchases you can pay off monthly.

Apply for Retail Credit Cards

Store retail cards tend to be more lenient on credit requirements. Consider cards from retailers where you regularly shop. Use them sparingly and pay them off each month.

Request Credit Limit Increases

As your credit improves, request higher limits on your current accounts. Higher limits with low balances help improve your credit utilization ratio.

Become an Authorized User

You can rebuild credit by becoming an authorized user on someone else’s account. Make sure the account holder always pays on time.

Avoid Payday Loans

Payday loans seem tempting but carry fees and interest rates over 300%. They should be a last resort option only.

Chapter 4: Compare Card Offers Pre-Qualification Tools

Once you’ve begun using credit again for 6-12 months, you may start receiving offers for unsecured credit cards. Credit card companies provide online pre-qualification tools you can use to check your eligibility for different cards without formally applying and getting a hard inquiry. 

Compare pre-qualified offers from major issuers like Capital One, Discover, Chase, Citi and your own bank. Look for cards offering low regular APRs, modest annual fees or perks that match your spending habits. Getting approved for an unsecured rewards card is a major step in fully rebuilding your credit.

Chapter 5: Add Yourself as an Account Authorized User

As mentioned previously, becoming an authorized user on someone else’s credit account is a valuable way to rebuild credit. The primary account holder can add you as an authorized user on a credit card or installment loan account. 

Make sure to ask the primary account holder to add you formally as an authorized user with the bank. As an authorized user:

– The account will be added to your credit reports.

– The payment history will impact your credit score.

– You aren’t financially responsible for balances.

Choose an account that’s been open a long time, has a low balance relative to the limit, and perfect on-time payment history. Ask a family member or close friend if they are willing to add you.

Chapter 6: Check Credit More Frequently

It’s always important to routinely check your credit reports and scores, but it becomes even more critical after bankruptcy. Initially check your reports every 3-4 months to ensure your bankruptcy discharge is reflected properly and monitor your scores. 

Many credit cards and lenders provide free access to your credit scores. You can also purchase scores directly from MyFico or CreditKarma for a small fee. Watching your scores gradually improve can provide motivation to continue responsible credit habits.

Chapter 7: Consider Secured Installment Loans

Secured installment loans are loans backed by a cash deposit you provide to the lender. Like secured cards, they are easier to qualify for after bankruptcy but still get reported to the credit bureaus.

Small short-term installment loans of 6-12 months from lenders like Self Lender help mix up your credit profiles. Make sure to make the payments in full and on time. You get your deposit back at the end when the loan is paid off.

Chapter 8: Leverage Credit Builder Loans

Some credit unions offer “credit builder” loan programs specifically designed to help you establish positive payment history and credit mix after bankruptcy. 

With a credit builder loan, the amount borrowed goes into a locked savings account. You make fixed payments over a term to repay the loan and interest. When the loan is paid off, you get access to the savings account balance.

Credit builder loans create an installment account on your credit reports and demonstrate your ability to manage credit responsibly. Interest rates are low and repayment terms often flexible.

Chapter 9: Wait to Apply for a Mortgage

It may take at least 2-4 years after bankruptcy to qualify for a mortgage. Most conventional loans require 2 years of reestablished credit, 20% down, and higher credit scores after bankruptcy.

Use the rebuilding period to save up a larger down payment and pay down other debts. Keep your credit utilization low and have no late payments on credit accounts. Following credit best practices will help qualify when you’re ready to apply. 

Chapter 10: Rebuild Your Savings

Bankruptcy provides the opportunity to wipe the financial slate clean and rebuild your savings. Create an emergency fund with 3-6 months of living expenses in a high-yield savings account so you aren’t forced to rely on credit. 

Contribute to a 401(k) or IRA retirement account. Find rooms in your budget to save for other goals like a home, education, travel or starting a business. Healthy savings and minimal debt are the foundation for long-term financial security.

Conclusion: Patience and Discipline Lead to Credit Recovery

Recovering from the credit damage of bankruptcy takes time and discipline. Expect the process to take 2-4 years of responsible credit behaviors before your scores reflect your true risk level again. But with a patient and diligent approach, you can rebuild your credit back to 700+ scores and beyond.

– Always make at least the minimum payment on time each month. Set up autopay if it helps.

– Keep credit card balances low relative to limits. Below 30% is good; 10% or less is better.

– Limit new credit applications to only necessary accounts. Too many can indicate risk.

– Build positive payment history with secured cards and installment loans.

– Monitor your credit reports and scores closely. Dispute any errors.

Declaring bankruptcy was a tough but necessary decision. Now you’re focused on reestablishing healthy credit habits and Controls. With consistent effort, your rebuilt credit will give you financial opportunities and flexibility again.