Your credit report after bankruptcy – What to look for

A credit report represents your financial history and helps lenders and creditors decide whether to transact with you or not. If you file for bankruptcy, it is going to appear on your credit report – for 10 years in case of a chapter 7 filing and for 7 years in case of a chapter 13 filing.

You must be worried about the effect of bankruptcy on your credit score. The popular myth is that a filing will make it next to impossible for you get any loans. The truth, however, is that though the bankruptcy will have a negative impact on your credit score, it won’t be very big considering your credit score is most probably already in a poor condition from all the financial difficulties that pushed you into bankruptcy.

In fact, getting your debts discharged under bankruptcy might make you more attractive to potential lenders as now you don’t owe anything and are barred from filing for bankruptcy for a number of years.

Having said that, you still need to begin rebuilding your credit worthiness. If you don’t improve your credit score, all you are going to get are loans at exorbitant interest rates along with abusive fees.

Start by thoroughly studying your credit reports from all three major credit reporting agencies – Equifax, Experian and TransUnion. These reports should show a ‘zero’ balance for every discharged account and should say that they were discharged in bankruptcy.

Also check that all the accounts appearing on the reports are really yours and that any new collection accounts are not for any of the discharged loans. What usually happens is that big creditors sell off delinquent accounts to collection agencies, but overlook reporting bankruptcy filings to them. And the collection agency ends up posting a new collection account for a discharged debt in ignorance.

So, if you find any of these errors on any of your reports, you need to challenge it immediately. The reporting agency must try to verify the account, and if it can’t, it must remove it.

You should also ensure that your residential and employment history on the credit reports is updated and accurate.

After making sure that your credit reports are clean, apply for credit cards to rebuild credit. This is because using credit is the best way to showcase your creditworthiness. See if you can get an unsecured credit card. If you can’t, go for a secured one for which you have to make a deposit to get credit. For example: you make a deposit of $500 and get a credit card with a limit of $500.

Start off with a low limit but try to pay as many of your bills with the card as possible. Just don’t ever cross your credit limit and be sure to pay it off in full on time. Otherwise, you will just end up hurting your credit score further.

Make sure the bank you got the credit card from reports the account to at least one the credit agencies. You will see an improvement in your credit score if you use the card regularly and make timely payments.

After some time, try to get a small unsecured loan or unsecured credit cards to rebuild credit. When you do get these, remember to make all your payments on time. Small steps like these will help you achieve a good credit score within a couple of years of your bankruptcy.