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How can you rebuild your credit after bankruptcy?

On Behalf of | Jan 20, 2023 | Personal Bankruptcy

If you’re a Michigan resident struggling with insurmountable debt, you might consider filing for bankruptcy. While this is one of the best ways to alleviate your financial burdens, it can also cause your credit to take a hit. This is how you can rebuild your credit after bankruptcy.

Pay bills in full, on time

Paying off all existing bills, credit cards and loans on time can help to reestablish your credit. Also, paying in full instead of in monthly installments reflects better on you. Your payment history comprises 35% of your FICO credit score, so taking this step shows the credit bureaus that you’re responsible.

Get a secured credit card

Applying for a secured card can help you gradually rebuild your credit after bankruptcy. It runs on a deposit of your own cash, so you dictate your credit limit. Use the card responsibly by ensuring that your total credit utilization ratio remains low; this should be 30% of your credit limit. As you use the card responsibly, your credit score will improve, your limit will increase and you can eventually upgrade to an unsecured credit card.

Keep your job

Keeping your job after bankruptcy shows lenders and credit bureaus that you have a steady income. It helps when repairing your credit. If you’ve been looking to get a new job, wait until your credit is in the good range or better.

Keep an emergency fund

Stash money away into a savings account to serve as an emergency fund. It could help if you need to make a large purchase and prevent you from using a credit card and racking up more debt. For example, your car breaks down and needs major repairs.

Bankruptcy may be your only option out of massive debt. You can take control afterward and get a fresh start while fixing your credit.