Credit Recovery After Bankruptcy

Bankruptcy creates a significant negative impact to a consumer's credit report. It affects borrowing ability to qualify for loans or lines of credit and lower interest rates. Rebuilding credit after bankruptcy takes time, patience and adherence to all financial agreements.

Time Frame

According to the Federal Trade Commission and the Fair Credit Reporting Act, bankruptcy information may be reported for 10 years from the date of the order's entry for relief or the date of adjudication. The larger credit reporting agencies--Experian, Equifax and TransUnion--are members of the Associated Credit Bureaus. Those credit reporting agencies remove bankruptcies from credit reports after seven years for debtors who file under chapter 11 and chapter 13 protection.

Credit Counseling

Credit counseling is required from a government-approved organization within six months before filing for any bankruptcy relief. Counseling provides consumers with an opportunity to evaluate their debts and receive education on how to better manage their finances. Information from such counseling sessions should be used to help prevent future financial difficulties. Credit counseling services are also available afterward to help consumers with their post-bankruptcy recoveries.

Cash vs. Credit

Bankruptcy will make it difficult for a consumer to qualify for loans and lines of credit. Before trust can be re-established and credit privileges extended again, a consumer may have to pay cash for purchases. Cash purchases made with small independent merchants or retailers over a period of time can open the door to quicker credit approval. Once credit is extended and the account is maintained according to terms, the merchant may be used as a future credit reference.

Be Wary of Offers

Offers often arrive in the mail stating a consumer has been pre-approved for a credit card. This is based on a soft credit check, where the credit card company has viewed rudimentary or simple consumer credit information. Credit card offers may be subject to change once a credit card company receives a consumer's authorization to view the complete details of a credit report, what is known as a hard pull. Bankruptcies can result in credit denial or a higher interest rate, and those hard credit inquiries also show up on a consumer's credit report, also affecting future credit requests.

Co-signer

Having a co-signer on a credit account is one way to help build credit. A co-signer is an individual who will take financial responsibility for a loan or line of credit if you default. By honoring the account's terms in making regular payments and staying under your credit limit, you can show financial responsibility and rebuild your credit.

Money Management

To avoid future financial problems after bankruptcy, learn from the mistakes that may have caused you to seek such relief. If the filing was related to poor money management, learn how to budget spending to prevent future financial turmoil. Monitor expenses and cut costs to manage debt.