Bankruptcy literally causes your credit score to bottom out, but you can recover from a bankruptcy if you’re willing to work at it. In fact, if you handle your finances properly after bankruptcy and start rebuilding your credit as soon as possible after your bankruptcy is discharged, you can recover long before the bankruptcy drops off your credit report. Truthfully, you won’t see an excellent credit score, but you can build your credit up to the point that you can get a credit card, you can buy a car, and you can even buy a house, as long as you’re willing to do the financial work that it takes to get there.
How quickly you are able to re-establish credit and how much you will pay for that credit depends largely on your behavior after your bankruptcy is discharged. If you immediately start handling your financial affairs responsibly by paying all of your bills on time, not applying for a bunch of credit all at once, and keeping your balances low when you do get credit, your credit score will begin to improve.
Wondering where you’ll be able to get credit after bankruptcy? Unbelievably, you may begin to get credit card offers even before your bankruptcy is discharged. Granted, these offers won’t be from the mainstream lenders that offer the best interest rates, but you will receive offers. Chances are, these offers will be from lenders that specialize in “subprime” credit cards that target those with less than perfect credit, and chances are, the interest rate will be astronomical and there will be fees attached to the credit card they are offering. You may even be tempted to pay those rates and those fees just to get credit of some kind. Don’t do it – that’s not the best way to start! There are other options.
The first, and probably the easiest, way to get started is to get a secured credit card. Unlike a conventional credit card, a secured credit card is literally secured by a deposit that you pay when you set up the credit card account. Typically, the amount of the security deposit will equal the amount of available credit that you have on the credit card. But, there is a huge advantage to a secured credit card – the interest rates and fees (if any) will likely be far lower than a subprime credit card.
Other than that, it will work just like a regular credit card. You’ll make purchases with the card, get statements in the mail or online, and you’ll make payments on the balance owed. And, just like a conventional credit card, the secured credit card lender should report your responsible use to the major credit bureaus, thus starting you on the path to better credit. (If they don’t report to the credit bureaus, you don’t want the card.)
Many secured credit card companies will even convert your account into a conventional, unsecured credit card account after a reasonable period of time has elapsed. It all depends on the card you choose, so shop wisely and read the fine print!
The other way that you may try to get started on rebuilding your credit is to consider a catalog shopping or gas credit card. Catalog shopping cards and gas credit cards are typically easier to get than conventional credit cards, but most of these lenders also report your responsible use to the major credit bureaus, so they make good starting points when you’re seriously trying to rebuild your credit score and don’t have a lot of money to put into security deposits and such.
Fingerhut is one of our favorite catalog shopping companies simply because they do work with those of us with less than perfect credit and because they’re pretty competitive in terms of interest rates, merchandise selection and pricing, and so on. If you haven’t looked at Fingerhut in a while, you may want to look into opening a Fingerhut Credit Account issued by WebBank.
From past experience, we’ve seen lots of people recover from all kinds of credit setbacks, from multiple bankruptcies, repossessions, and more, but the single most important thing that you must remember when you are trying to rebuild your credit after a bankruptcy is that you must be willing to put in the time and the effort that it takes to get it done.
There will be times when it is discouraging… you may find that you’re turned down by some lenders, but there are lenders who will work with you as long as you’re working at it yourself, and the best way to do that is to PROVE your credit worthiness as soon as you can!