For many would-be bankruptcy filers, a significantly lowered credit score is one of the largest negative consequences of filing for bankruptcy protection and the financial hardships that often come before bankruptcy.  Delinquent payments, repossessions, evictions, high credit usage, and bankruptcy filings all serve to reduce credit scores, and a low credit score can limit access to future credit and lending, or allow for access only at less favorable interest rates and other terms.  Derogatory marks on your credit will typically remain on your credit report and impact your score for 7 to 10 years after the fact, which can make improving one’s score in the short term difficult. 

Credit scores can be hard to predict and understand, the exact formulas and factors used to calculate them being known only by the reporting agencies.  However, there are tools that are available that may allow for rebuilding credit to a manageable level, both in the short and long term after filing for bankruptcy, minimizing the impact of filing while enabling needed bankruptcy relief. 

1. Discharge

A negative credit mark from bankruptcy is unavoidable when filing, but this mark is not always a net negative for your credit score.  While every case will be different depending on pre-filing financials, it is not uncommon for a bankruptcy filer’s score to decrease upon filing, experience a period of significant ups and downs, and then rapidly settle into a credit score near or even above pre-filing levels following discharge of a filer’s debts.  For many this seems counterintuitive, but often the negative mark from filing being outweighed by other factors improving due to discharged debts.  While the negative mark will remain, its effect may be muted or decrease in time, regardless of any other steps taken to improve credit scores. 

2. Ensure Accurate Credit Reporting

Bankruptcy discharge is intended to but a stop to all efforts to collect against a debt as to a filer personally, and changes the way creditors are permitted to report a debt to reporting agencies.  Discharged debt will often continue to appear on a credit report, typically indicating they have been discharged, but should not indicate an active account, due payments, or a balance yet unpaid.  Some creditors, however, continue to report improperly after discharge, a violation of the discharge order.  Sometimes this is a mistake, sometimes a creditor does not know any better, and sometimes this is a malicious tactic to attempt to extract payment from a debtor that has been discharged.  Such improper reporting may continue to suppress your credit score, and should be disputed with the reporting agencies that show the improper reporting. 

3. Secured Credit

Low credit scores can make acquiring credit cards and other ordinary forms of credit difficult, as banks and lenders may have low confidence any funds lent will be recovered, as their only recourse in the case of default is to file suit for the debt and eventually seek to garnish wages or seize assets- time consuming and expensive options for creditors.  A secured credit card, on the other hand, requires a cash deposit with the institution extending credit, a deposit which they will be able to take from in the event the card is not paid.  If you can provide the deposit, there are typically institutions willing to provide a secured credit card, which will then be reporting to credit reporting agencies just as an ordinary credit card would, thereby helping improve your score for timely payments. 

4. Secured Loans

A Secured loan is another option for acquiring credit with a low score.  Such a loan functions similar to a car loan or mortgage: the debt is secured by collateral, a house or car or other asset of value, which the lender may be able to seek to seize in the event it is not timely paid.  As with a secured credit card, lenders are more willing to lend funds if they have an easy means of recouping their funds in the event of non-payment.  Using a secured loan requires having equity in an asset a lender is willing to accept as collateral, and comes with the risk of losing that asset if you fail to pay, but such loans are typically reported to credit reporting agencies and so can be an effective tool to build credit if used responsibly.  

5. Co-signers

Some credit cards and most loan lenders will permit a co-signer to join you on the card or loan.  If your co-signer has a better credit score than you, this may convince a credit card institution or lender to extend credit to you even if they otherwise would not do so for you individually.  If you have someone you trust who has better credit and is willing to co-sign with you for credit or a loan, this may be an effective tool for acquiring credit and helping rebuild your own score, and may even help you acquire credit at a more favorable interest rate than you otherwise could.  However, it is important to be careful when co-signing with anyone- the co-signer is risking their own credit in the event you fail to timely pay as agreed.  Similarly, in the case of a credit card account, they may also have the ability to spend on credit to the account, which may leave you on the hook for their spending if your co-signer is unable or unwilling to pay, thereby hurting your credit score if those expenditures are not timely paid.  Consider carefully before co-signing with anyone, understanding the risks you are both taking for one another with respect to the credit or loan you are taking. 

6. Loan or Credit Builder Account

Some institutions offer special credit builder accounts to assist those unable to obtain other credit.  Such an account involves making monthly payments to an institution to hold on your behalf until they have sufficient funds to then “lend” you your funds back.  Funds paid over to the institution before being lent are held in an interest earning account in the meantime.  While paying a lender before they have actually lent you any funds may feel counterintuitive, this style of lending account enables those without the needed assets for a secured credit card or secured loan to obtain some form of account that will report to credit agencies, while minimizing risk for both the lender and borrower.  Typically, it is possible to cancel such an account at any time before the loan is made and withdraw funds already paid into the account, creating little risk in the event you need access to those funds before the loan can be fully funded and lent to you.  .  

7. Maintain Low Balances

Having access to credit or loans and timely paying them is only one part of building credit.  Credit scores also factor in the percentage of your current credit being used and your income to debt ratio; high credit usage and a low income to debt ratio makes you a riskier prospect for future lenders.  Keeping credit usage lower than 5% of its maximum is typically ideal for boosting credit scores, and keeping your total loans down relative to your income prevents those loans from seriously suppressing your credit score.  Expect a sudden and significant score drop if your credit usage goes too high or if debt far in excess of your income is reported to agencies, though this drop is often reversible by bringing credit usage back down or paying off loans. 

8. Become an Authorized User

Similar to having a co-signer on an account, someone who already has access to credit can make you an authorized user on one of their accounts, thereby granting you a card with access to their line of credit.  Then, whenever that account is reported to credit agencies, marks are made on your report as well.  Being an authorized user will likely have a relatively minor effect on your score, but may be a small boost with minimal risk to you, as you are not personally responsible for paying off the credit.  However, understand the risks the account owner takes by making you an authorized user, and the potential trouble with them if you are not mindful of your use of the account.  Still, if you have someone willing to make you an authorized user and are having trouble obtaining any credit of your own, this may be an initial credit building step worth investigating. 

9. Ask for Credit Reporting

Some creditors and most regular bills do not report payments to agencies until they become delinquent- that is, these bills can only hurt your credit for non-payment, not help build your credit for timely payment.  However, if you have a bill or debt that is not currently reporting your on time payments, it cannot hurt to ask if they are willing to do so.  Most will likely say no, but if any are willing then you will have acquired a small boost to your credit reporting for the price of a phone call. 

10. Use Credit Responsibly

All of these options for rebuilding credit rely on timely payment of future expenses and debts to be effective.  No amount of effort to rebuild credit will succeed if additional negative marks continue to be reported to agencies, so it is critical to consider any decision to use credit or take on debt carefully and to plan and budget accordingly.  Equally important is to understand any decisions before you make them, be wary of predatory lending and promises, and not to agree to anything you do not fully understand.