How to Rebuild Credit after Bankruptcy

The best way to rebuild your credit after bankruptcy is to give the process time. Each state has regulations determining how long a bankruptcy will remain on your credit report, and this length can be between 10 and 15 years. Later, evidence of your bankruptcy may still be accessible by lenders carrying out legal searches, but your credit report will not reflect the problem. While time is the best remedy, there are specific, measurable actions you can take to help the process along.

Monitor Your Report

The first and most essential step to take to rebuild your credit is monitoring your score. Once you have declared bankruptcy, a judge will work with you to close all of your existing debts. One by one, these lenders will be asked to stop contacting you and to stop knocking your credit score. While they will report your defaults to the credit agencies, they cannot continue to bring down your score by repeated attempts to collect. Instead, make sure the lenders officially stop contact with you and your credit report. This first step assures your credit does not dip any lower in the months and years following your bankruptcy.

Accrue Assets

You will have a hard time getting a loan right away after bankruptcy; instead, save your cash and begin to look for assets you can accrue. Once you have saved a few thousand dollars, consider purchasing a vehicle or electronics that will build your capital base. Of course, spending all of your cash is not advisable. Simply make key purchases to replace the assets liquidated during your bankruptcy. Assets with actual cash value, such as vehicles or stocks, add more to your income than assets with hypothetical value, such as antiques or collector's items.

Take a New Loan

If you have assets totaling high value, you can secure a loan even with poor credit. A lender will want to secure your loan with collateral. Since you have accrued assets, you now have the collateral to do this. Do not risk assets unnecessarily. Instead, start by taking small loans you are fully confident you can repay with ease. Your credit history will likely mean your loans will have low limits and high interest rates. Typically, you would be ill-advised to take this type of loan. In your circumstance, however, taking a loan at unfavorable terms is potentially a good idea. Simply ensure that you have enough funds in savings to pay the debt for three months, even if you lost your job or suffered a financial emergency.

Build Your Available Credit

As you take loans, the credit available to you will increase. This works in your favor. It is best to have a credit limit much higher than your debts; it is also best to have assets worth much more than your credit. Keeping these matters in mind, you can balance your credit, debt and assets to a favorable amount to enhance your score. As long as you are making all debt payments on time, you will notice significant changes month by month. Paying off installment loans will yield the highest credit increases, so look for opportunities to do this when possible.

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