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Credit Repair After Bankruptcy

Credit CardIf you have recently filed for bankruptcy or are considering filing for bankruptcy, you may be concerned about how to repair your credit after bankruptcy. While bankruptcy and the financial problems leading up to bankruptcy do greatly impact your credit score in a negative way (see How Does Bankruptcy Affect Your Life?), it is not impossible to repair your credit after filing for bankruptcy.

After you file for bankruptcy, you should obtain a copy of your credit report and review it for any inaccuracies. If you find any errors on your credit report, it is important that you contact the consumer reporting agency—Experian, Transunion or Equifax—and inform them in writing of the errors. Be sure to include copies of documentation that disputes what is included on your credit report. The federal government allows you to receive one free copy of your credit report annually. You can request your free report at www.annualcreditreport.com.

Once you are certain that your credit report is accurate, it is important that you create a budget and being to live within your means. Taking out as little credit as possible is important and focusing on paying off the debt that you still owe after bankruptcy is very important.

To understand how your credit can be repaired after bankruptcy, it is important to understand what is valued by creditors in a credit report. Obviously, paying off your debt on time is very important to your credit report. And not being able keep up with monthly payments on debt is often what leads people to consider bankruptcy in the first place. After you file for bankruptcy, make sure that you pay any debt that’s left over (such as your mortgage or student loans) on time each month. This will slowly start to repair your credit as you build a new history as a responsible debtor.

In addition to your payment history, your credit report also takes into consideration the total amount of outstanding debt that you owe creditors. High debt balances decrease your credit score as the more debt you have, the less likely you will be to pay back more debt. For this reason, it is important that you start to pay off the balances that have the highest debt and then work your way down. Gradually, you will begin to show that you are able to responsibly pay back your debt.

Your credit report also values the duration of your credit history. The longer you have held credit, the better your credit score; while the shorter your credit history, the lower your credit score. For this reason, it is important that you not rush out and try to get as many credit cards as you are eligible for. This will generally lower your already anemic credit score. Instead, it is usually recommended to obtain one secured credit card; that is, a credit card where you prepay the balance and are only able to spend as much as you have prepaid. This will allow you build up your credit and with time, make you eligible for a regular credit card.

In the end, credit repair after bankruptcy takes time. Generally, if you make payments toward debt faithfully every month and keep your outstanding debt balances low, your credit score will gradually increase. Sometimes, in as little as 12 to 18 months you may be eligible for credit without a higher interest rate. If you would like more information about how to repair credit after bankruptcy, it is a good idea to talk to a bankruptcy attorney or consult a credit counseling agency for advice.