How to Rebuild Your Credit after a Bankruptcy
by Doug Pretorius
Once your bankruptcy is discharged it’s critical to begin rebuilding your credit as quickly as possible. Improving credit will not only reduce your interest rates but it’s required in order to get a mortgage especially with today’s new stricter lending guidelines. The good news is that even though a bankruptcy will remain on your credit file for up to 7 years it’s possible to get a mortgage much sooner. There are some lenders who will give you a mortgage within 6 – 12 months but the interest rate won’t be very attractive and you will be required to come up with a larger down payment. However you can usually qualify for a mortgage with a good interest rate and normal down payment within 2 years. The key is to get started right away and work diligently towards your ultimate goal of home ownership.
Here are the steps you should take to rebuild your credit:
- After discharge check your credit report with the major credit bureaus and verify that there are no errors in your report.
- Talk to your bank and let them know that you want to re-establish your credit rating.
- If you don’t already have one; open a savings account and begin saving at least 5% of your income every month.
- Apply for a guaranteed credit card. A guaranteed credit card means that you deposit money either into a special account or your bank will “freeze” a certain amount in your existing account. This money is used to secure any purchases you make on your credit card.
- Charge items to your guaranteed card and pay them off completely every month. As each month passes your credit rating gets better and better.
- In 3 – 6 months apply for a separate unsecured credit card from your bank.
- Another 3 months of on-time payments and you can apply to have your guaranteed card replaced with a second unsecured card.
- At around the 12-18 month mark apply for a car loan, car lease, or another line of credit. This is the third and final credit account most banks look for when considering you for a mortgage.
- Finally at the 24 month mark it’s time to review everything and apply for your home loan!
Feel free to use the following resource to assist you in recovering from your bankruptcy: