How Do You Build Your Credit after a Bankruptcy?

Posted by Fitz Villafuerte under Guest Posts, Personal Finance on September 22, 2010

Have you ever been bankrupt? And I don’t simply mean “being broke” but real serious “I just filed for bankruptcy” serious.

I personally don’t know anyone who have filed for bankruptcy. While possible, it’s not really common practice in the Philippines. But in other countries like the US, it is – and I’m sure you’ve read stories of celebrities filing for bankruptcy.

I’m telling you this because that is what our guest post for today is all about – recovering from bankruptcy.

Whether you’re “legally broke” or just trying to recover from a bad credit history, I’m sure these tips can help you in bouncing back and raising your credit worthiness again.

Bankruptcy is not only a financially devastating experience but can be traumatic too. It is an event no one would want to face. However, many people have had to file bankruptcy and unfortunately, many more will. But does the bankruptcy mark a permanent end to your credit worthiness?

The answer is a firm NO.

While it is true that bankruptcy punches a considerable hole in your credit record, you do not have to live with a poor score for the rest of your life. Remember almost anyone can shore up their credit score after a bankruptcy โ€“ all it takes is knowing what to do, how to do it and when to do it.

Here are a number of proven ideas to help you along the way:

Clean up your credit report
After you successfully file for bankruptcy your account may continue to be reported as overdue and open while in fact it has been closed because of the bankruptcy.

If you see this, get in touch with the credit bureaus to have them rectify such records in your account to read “included in bankruptcy”. The credit bureau would usually only act after you fill out a dispute form online and provide supporting evidence or references. With this corrected, you can now focus on getting back on track.

Apply for a secured credit card
Getting a secured card is another step in the right direction. An unsecured credit card would be ideal but anyone who is just coming out of filing bankruptcy will have difficulty applying for and obtaining an unsecured card.

Banks are usually willing to give a secured card since the card limit is tied directly to the amount you have deposited in your bank account. This means the card has a virtually zero risk of default. Card companies and banks that issue secured cards often do not provide credit account records of their clients to the credit bureaus.

Pay installments on existing loans on time or early
If there are any loans that you are still paying off after filing for bankruptcy, you can improve your credit report by paying off the loans on time and where possible paying more than the amount required for each installment. Student loans in particular come to mind as these are difficult to discharge through bankruptcy except in extreme circumstances.

Making payments on time and paying even more will start to feed your credit report with positive information. That way, you develop a favorable credit report thus pushing up your score. In fact, this will be one of the most important ways of rebuilding your credit worthiness.

Retain as much debt as you can comfortably afford to repay
As a follow up to the previous point on student loans, bankruptcy does not require you to discharge of all your loans. You can therefore leave out as much debt as your current income can realistically allow you to comfortably pay.

If you can negotiate lower interest rates, lower installments or longer tenure for your car loan or mortgage so you can continue to repay it, then the better. Since your credit score drastically plummets after bankruptcy, such loans can help you start the climb back up quicker and do it faster.


Talk to a car dealer to get a car loan
If you could not retain the car loan after bankruptcy, find ways of getting a car loan. Car dealers are sometimes under immense pressure to dispose of the vehicles in stock that they have been known to accommodate persons that other financiers would not.

Talk to a car dealer and discuss payment in installments. You can use your ability to repay the car loan as evidence of your growing capacity to handle larger debts.

Be an authorized user of another person’s credit card
The golden rule is that you must have access to some form of credit in order to prove your ability to service debt. Since credit card companies will be unlikely to issue an unsecured credit card to persons with a history of bankruptcy, you can “access” credit by having a close friend or relative in good credit standing adding you as a person who is authorized to use their credit card.

The critical aspect here is that the person must have their finances in good order and pays off their card debt on time. The record of this credit card in good standing will then be reported in your credit report and help push up your score.

Pay bills on time or early
Be careful not to focus on credit card companies and banks only to end up neglecting repayments to other parties who have input on your credit score. Utility bills are a case in point.

When the bills arrive, make it a habit to remit payment as soon as possibly such as two days after you receive the bill. Take advantage of online payment methods that you can use to make payment immediately you know how much you owe.

Submit an application for a personal loan
This might look like attempting the impossible – but never say never. If you cannot qualify for a personal loan, apply for a small loan to buy relatively inexpensive items such as furniture or electronics that you know you can afford easily even without the loan. Be prepared to present a strong case to your bank’s loan officer that demonstrates your ability to repay. Once you get the loan, pay off the installments ahead of time.

This report will filter into your credit report and earn you points on your way up. This has the added advantage that you will not only have improved your score even if marginally but you will also have proven to the lending bank that you can repay. Your next application for a loan or credit should not be as difficult as your first application and you can build on the momentum to continue developing a positive credit track record.

This guest post is by Mirsad Hasic, an the editor from Think Credit Cards.

A website that gives the best credit card deals and is a consumer oriented site where you will learn how to pick a credit card for your specific needs; plus get valuable tips and strategies on how to reach credit card debt relief.

The tips given above are pretty solid in my opinion.

While I don’t entirely advise on getting the car loan, the other tips like paying your existing loans on time, getting a supplementary (extension) credit card from someone with good credit standing and not missing any utility bill payments are good advise to follow.

Also, you may want to check out some of the credit card related articles I’ve already written here. They can be found in the All About Credit Cards section.

Lastly, if you have your own tips or advise about anything related to business, investments and personal finance. Check out the guidelines on guest posting here: Tell Your Story

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Photo credit: pfala and Mike_tn


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3 Responses to “How Do You Build Your Credit after a Bankruptcy?”

  1. Red says:

    Hi Sir Fitz, Thanks for always updating your site. This site is really great. Your one of my idol online. I hope to meet you in person too. ๐Ÿ™‚ God bless.

  2. Marie Aquino says:

    May I ask how to file for bankruptcy here in the Philippines? say if already unemployed and cannot pay credit card bills..thank you

  3. jehzlau says:

    Kelangan ko na cguro mag file for bankruptcy. hahaha ๐Ÿ˜€

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