The Best Ways to Rebuild Credit After a Bankrutcy

Rebuild credit after bankruptcycredit card and hand image by Warren Millar from Fotolia.com

Bad credit is a common result of bankruptcy, but you don't have to accept a low credit rating indefinitely. You can rebuild your credit and acquire a higher rating. Of course, this requires quick action and careful planning on your part. Many lenders do not extend lines of credit to people with recent bankruptcies on their record, so you'll need to choose the right lenders and credit card issuers.

Retain a Few Debts

You're not forced to include all of your debts in a bankruptcy proceeding. For example, persons who own a home and those with a car payment or student loan do not have to list these debts in the bankruptcy. Retaining these debts can give you a jump start on rebuilding your credit. Your credit score will drop after a bankruptcy, but making your remaining debt payments on time each month will gradually increase your credit score.

Sub-prime personal or auto loans are also helpful when trying to rebuild credit after a bankruptcy. Not every lender offers sub-prime loans, so you'll need to speak with a loan officer and discuss available options. An installment loan for electronics or furniture or a "bad credit" auto loan can help restore your credit rating. Bad credit loans have higher interest rates and higher payments, but that's a small sacrifice for better credit in the future.

Apply for a secured credit card immediately after your bankruptcy proceeding. Secured credit cards are designed to help people with less than perfect credit or no credit history build a good rating, so you'll qualify with no problems. These cards work differently than regular credit cards. Banks issue them and require you to open a savings account with the institution and make a security deposit (typically around $500) to qualify for the card. Set-up fees and monthly maintenance fees my also apply.

Keeping your debts manageable and paying your bills on time are keys to rebuilding your credit history after bankruptcy. Resolve to adopt new credit and payment habits. Making payments within a day or two of receiving your statements or making online payments eliminates late payments.