The most important thing to remember about re-establishing credit after filing bankruptcy is to pay your bills on time. Remember, you are generally unable for another chapter 7 discharge until 8 years after your case was filed. With that in mind, the following are steps that most bankruptcy lawyers recommend to re-establish credit.
Follow these simple steps.*
- PAY YOUR BILLS ON TIME.
- Start with your credit report, you can get a free copy at www.AnnualCreditReport.com. Check for mistakes and follow the instructions on how to correct errors.
Next, find a friendly local credit union near your house or convenient to your travel routine. Credit unions offer a number of products that you can use to rebuild credit. Think of these items as part of your toolbox that you will use as needed.
- Open a secured credit card account. This will require a deposit, usually somewhere between $200 to $500. Put down as much as you can afford, the higher the credit limit, the better. Limit the use of this card to purchases you can immediately pay, such as a weekly gas tank fill-up. Then use the credit union free online bill paying service to pay any purchases you charge on the account. This avoids losing money to interest and late fees, and more importantly, avoids dropping your credit score.
- Next, take out a small credit union promotional loan, typically in the amount of $300 to $1000. These are made available throughout the year with catchy marketing themes, such as, Spring Cleaning, Summer Vacation, Birthday, and Christmas. Any amount will do, just so long as you do not spend the money. Remember, your goal is to rebuild credit not to get yourself in debt. Pay the loan back after about a month or so, the sooner you do, the less interest you will have to pay. Then do it again a few months later. And again, to build up a history of paying back your debts on time.
- After a few loans, apply for a credit union Visa or Mastercard to replace your secured credit card. Put the security deposit refund in a credit union savings account and start to save for emergencies. Repay the new card each purchase or each month to maximize the on-time payment history and to avoid those nasty late fees and interest charges. As time passes, ask to increase the limit on your new credit card. Your credit score will react positively as financial institutions trust you with additional credit.
- When the time comes, apply for a credit union car loan. Credit unions offer favorable terms with discounts on interest rates when you set up an automatic monthly repayment through your checking or saving account.
