Thomas F. Miles, Attorney and Counselor at Law
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Rebuilding your credit score after bankruptcy

While declaring bankruptcy inevitably hurts your credit score, the fact is that you already had a troublesome rating or you wouldn't be considering bankruptcy in the first place. Bankruptcy is the first step in a process of correcting your finances and building that score back up.

A Chapter 7 filing will stay on your report for 10 years and a Chapter 13 for 7 years. Yes, that is a long time, but it won't take that entire time to rebuild credibility. Instead, it takes careful budget management and a strategic approach to getting yourself back on your feet to the point where creditors trust you again. It doesn't take nearly as long as most people think.

After filing for bankruptcy there are a few basic things all people can do to make sure that their fresh start is on the right track.

1) Request a copy of your credit score. There are online services that provide this to varied degree of accuracy. Discover offers a free FICO score, which is a bank-respected service.

2) Also request a credit report, and review this for accuracy. There may be accounts that were not yours, opened by customers with a similar name. Debt collectors may also attach new "collections" accounts to your file, which you will want to have removed if possible. Debt collectors often follow questionable practices and may have violated the law if you were not notified when the account was created.

Cleaning up a credit report will improve your score, but the rebuild takes time. It also requires proof in action, not just an audit.

3) Open secured credit card accounts. These are low limit credit lines offered by banks and credit unions to help customers rebuild their credit score. Through cautious use, you can restore your rating and slowly increase your credit line.

4) Use gas station or department store credit cards, paying your entire balance monthly. These high interest cards are easy to open regardless of your credit history and, with timely payments, it will help rebuild your rating. Use these at your own risk, as the temptation is always there to go beyond your means.

5) Keep your credit utilization low. Credit utilization is the percentage of your credit limit that you use each month. If your limit is $1,000, using 10% ($100) of credit builds a better score than if you use 90% ($900) of that limit each month, even if you do not carry a balance.

6) Never carry a balance. Remember why you are rebuilding your credit in the first place and emphasize caution.

Rebuilding credit is a challenge, but it's necessary after debt problems. A low credit score is not a result of your bankruptcy, but of the budget problems that preceded declaration. Your credit score won't rise overnight, but carefully following these steps will begin its renewal.

After going through the hardships of bankruptcy, a thoughtful and step-based financial plan is essential to your long-term success and this is just one piece. It's always important to watch spending versus debt and to make sure that you're looking to the future instead of in the current moment.

Bankruptcy declaration will show on your credit report for 7 to 10 years, but your score will recover well before that has expired. A report that shows steady improvement and reliable payment history, with or without bankruptcy listed, is what creditors want to see when reviewing your application.

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Thomas F. Miles, Attorney and Counselor at Law
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