How to Repair Credit After Bankruptcy

There is no quick fix to repair credit after bankruptcy. Building credit takes years, and declaring bankruptcy not only wipes out this good credit but actually makes it harder to build up again. Avoiding bankruptcy is always the best policy, but bankruptcy is the best option for a small amount of individuals who will benefit from the legal protections enough to justify the loss of credit. Once you have wiped your debt clean through bankruptcy, it is important to start immediately taking on new debts that will place you in a positive financial position.

Take New Loans

You cannot fix your credit score if you are not using your credit. Taking a new loan after you have filed for Chapter 7 can be very frightening, especially because too much borrowing is what got you into the bad situation in the first place. However, lenders want to see that you can be trusted to make the right decisions on new credit after bankruptcy. Start small, and aim for low limits on your loans. If you are using a credit card, pay down your balance every month instead of allowing it to grow out of control again. Once you start making monthly payments, your credit score will begin to creep back up. 

Opt for High-Risk Loans

The boost in your credit will happen faster if you take higher risk loans. High risk personal loans do not use collateral in order to receive funds, and they will help your credit more than a secured loan. When you secure a loan, you sacrifice one of your assets in order to achieve the funding. So, you have one plus coming in with a new loan and an equal minus going out with your asset. High risk loans are more expensive, but they can be worth it because of how they help your credit for future loans. 

Avoid Cosigners

Your credit will also move slowly if you use a cosigner on your loan. Because you are splitting the risk with the cosigning borrower, you are also splitting any potential reward. If you can only get a cosigned loan, then you may not have a choice. You should choose to go it alone if you are presented with the choice, though. Think about how every loan you take will affect your credit, and you will find there are many options that make sense for you in the long-term even if they are more expensive in the short-term. 

Remember Legal Protections

There are legal protections in place to protect consumers during and after bankruptcy. First, your lenders must stop contacting you once you have entered the Chapter 7 process. Further, the bad marks against your credit cannot stay there forever. There is a statute of limitations on missed payments, defaults and bankruptcies in every state. Knowing this limit in your state will give you a goal to keep in mind. Once you have made it to five to ten years after your bankruptcy, your lenders cannot even see your bankruptcy.


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