Bankruptcy is a complex legal process that comes with its share of benefits — and a few drawbacks. On the downside, bankruptcy can have a negative impact on your credit. The good news is, however, no matter how much damage it does, you can always build your credit back up again.
Depending on the type, bankruptcy will remain in your credit report for 7 or 10 years. During this period, its impact will lessen with time. That being said, you can take certain proactive steps to rebuild your credit after your bankruptcy.
Consider taking a credit-builder loan
It is normal to feel nervous about taking a loan after declaring bankruptcy. However, a credit-builder loan comes with a feature that can help you rebuild your credit with minimal risk. This facility works more like a loan in reverse. Instead of getting the loan upfront, you make monthly payments to a lender-managed account. At the end of your payment period, usually 1-2 years, you have the money credited into your account.
Consider a secured credit card
Payment history accounts for 35% of your FICO score. It’s fairly easy to get a secured card, which requires you to deposit an amount equal to your credit limit in the lender’s bank. Then, use the card judiciously and make all your payments on time. This is one of the best ways of demonstrating that you are financially responsible, and will eventually allow you to obtain unsecured credit once again.
Bankruptcy can give you the relief you need to start over on a clean financial slate. While there’s no magic trick that will immediately repair your credit after your bankruptcy, the situation is only temporary. With the right steps, you can turn your credit right back around