June 2nd, 2010

Dear Credit Karma… Fixing Credit After Bankruptcy

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Dear Credit Karma,
How do I start improving my credit health after filing Chapter 7 bankruptcy?

Bankruptcy will deal a devastating blow to your credit and credit score, but rest assured, improving your credit health and lifting your finances out of the red can start right away.

A Chapter 7 bankruptcy is a liquidation bankruptcy, meaning it wipes most of your debt and you receive your bankruptcy discharge in 4 to 6 months after filing. In fact, a Chapter 7 bankruptcy can sometimes improve a credit score in some cases because so much debt is discharged. After a bankruptcy, steer clear of:

  • Applying for a loan or mortgage. A bankruptcy on your record makes you a subprime borrower: lenders charge you a high interest rate, steep penalties, and consider you a greater risk. Your low credit score qualifies you for a rate 2 to 4 percentage points higher than a normal borrower, which amounts to thousands of dollars difference in payments.
  • Using a credit repair agency or service. These are scams that claim they can remove the bankruptcy from your credit report or fix your credit score, and will cost you time and money.
  • Applying for a credit card. Issuers rarely approve newly bankrupt consumers’ applications because of their rock-bottom credit scores.

Instead, take the following steps after your bankruptcy discharge to head for a bright financial future:

  1. Check your credit report. Request your free credit report from all three credit bureaus and make sure that your debts included in the bankruptcy are marked as “discharged in bankruptcy” or “included in BK”. Sweep your credit report for errors, missing information, and inaccurate items that will ding your credit score if left unchecked.
  2. Get a secured credit card. A secured credit card is your training wheels to better credit. Use your card for small monthly purchases, like a grocery run or gas fill-up, month to month to keep your credit utilization rate—the percentage of your available credit you are using—under 30%. Pay in full and on-time every month. Be consistent and get in the habit of managing credit like this now, and your actions will have maximum positive impact on your credit score.
  3. Pay your loans. If you have any installment loans that were not discharged, like student loans, use them to improve your credit health by making payments on-time and paying more than the minimum to quickly reduce your debt. You can take out new loans with time, but give yourself time to improve your credit health for a better credit score that will earn you better terms and lower interest on your loan.

Also keep in mind that many lenders have a bankruptcy filter in their underwriting, meaning they still may not approve you despite a good credit score because you have a bankruptcy on record.

As you build good credit history over the next year or two, you’ll better qualify for more favorable loans, unsecured credit cards with better terms, and your credit score will be on its way up. It takes 7 to 10 years for a bankruptcy to fall off your credit report, but diligent, responsible credit habits can reflect in your credit score within months.



Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

28 Comments

  1. Another thing that will help is buying a newer automobile. If you get pre-approved (there are places that don’t care about a BK) then even though your interest will be high you will begin to rebuild your credit through prompt payments.

    Dewey Kearney at 1:49 pm on June 29, 2010
  2. Bankruptcy is the process of declaring oneself insolvent in the event of an individual being unable to pay off his or her debts. It happens when the rate of the increase of the person’s debt is more than his or her ability to pay it back. You can read such basic bankruptcy questions and answers at http://www.diy4law.com/top-10-bankruptcy-question.php

    Bob at 8:48 pm on August 2, 2010
  3. BK was designed to help people get relief from insurmountable debts. However, I think alot of people are being taken advantage of in that they are told to get into questionable debt settlement programs or unaffordable mortgages in order to ‘do the right thing’ and avoid BK. Yes, BK has serious consequences, but not as serious as some hucksters wan’t you to believe. BK is bad, foreclosure is worse.

    Keith at 7:14 am on September 3, 2010
  4. I’ll will come off from bk next April. Will my credit score improve?

    lil at 7:50 pm on January 14, 2011
  5. Great post. I just saw this other one that made me think, “Buyer Beware..” http://blog.wealthhabit.net/2011/02/take-it-to-scissors.html

    Tracey at 7:47 pm on February 10, 2011
  6. My BK was closed in 2007. I hope that it shows on my credit report and would imporove the score. I am looking over one today, and getting the others in a day or so to look over. I am praying I will find mistakes and after pointing that out . My score will rise.

    healthlylifing at 2:30 pm on February 13, 2011
  7. I just joined credit karma today. I was just checking to see what my credit score would be after my bankruptcy went through last august. Its around 642! Can it possibly be that high?

    Eric at 12:19 pm on April 7, 2011
  8. There is a very helpful site. I am here reading through for approximately two hrs. I’m a newbie together with your education is quite useful when you are my experience. Thanks

    Anonymous at 1:54 am on July 11, 2011
  9. I filed BK7 last year. I continued to pay my car payment on time as have always done. After the BK7 I paid the balance off before the contract date. The creditor shows my credit report as discharged in BK7 and no rating. Should I expect a “payment in full”. Or In other words do I have any right to confront this company about a decent rating? My payment record was perfect.

    Felix at 3:21 pm on October 28, 2011
  10. I filed BK7 in 2009, my creditKarma score is 697, but still many
    credit card co. do not approve me for a card. They always mention that the reason for declining my app is the chapter7

    Gilbert Nieves at 7:55 pm on November 3, 2011
  11. I have “very poor” credit like 575 poor. I looked at filing bk7 and my scor will go down a whopping 5 points. I have 47k in medical debt but continue paying my Car loan on time but can not pay the medical.. Will a bk actually Improve my situation?

    Leslie at 4:47 am on February 6, 2012
  12. I filed chapter 7 in July and in November my credit score was 412. After my dischage in January my score was 525. I was approved for an Orchard Bank credit card 2 days after receiving my discharge. I was approved for a brand new car loan last month and I was approved for a Capital One credit card 2 days ago. My credit score went up to 604 in 2 months. I pay all 4 of my recurring accounts 2 weeks in advance without leaving a balance. I will continue to do this and hopefully reach a credit score of 700 by the end of the year. There is hope after bankruptcy.

    patrice at 5:48 pm on March 7, 2012
  13. Great job so far, Patrice. Keep up the good work, because you’re definitely on the right track!

    bethy at 9:17 am on March 8, 2012
  14. Can a secured credit card rebuild your credit? No. Not on its own. Owning a secured credit card alone will not help your credit in any way. But the responsible use of a secured credit card can, without a doubt, be a solid first step in re-establishing and rebuilding a solid credit record. Responsible use of a credit card, secured or unsecured, means keeping under your spending limit, and paying off your monthly bills on time and in full. If you have a secured card, and are looking to rebuild your credit, you will want to remain well under your spending limit.

    Once you have established a history of responsible spending with your secured credit card, over a substantial period of time (usually about a year, on most cards), you may want to attempt to convert your secured credit card to unsecured. Your secured credit card should have been reporting your activity to the major credit bureaus during this time, and your credit score should reflect your conscientious use of your secured credit card. Converting your secured card to unsecured will further serve to boost your FICO score.

    Unsecured Bad Credit Credit Cards at 8:00 pm on March 13, 2012
  15. I filed BK last January. I have continued to pat my mortgage and home equity line of credit on time since then. Those payments have been accurately reported to credit agencies. My credit score hit 703 but is now down to 700. Why did it drop and what can I do to increase it?

    Anita at 11:36 am on April 13, 2012
  16. Small fluctuations like this are difficult to pinpoint. It could be any number of factors that influenced your credit score. Sounds like you’re doing all the right things, though. If you have credit cards, make sure you keep the balances below 30 percent of your overall credit limits (that’s your credit utilization rate); that’s a big influencer on your credit score. For more recommendations, see our Credit and Advice Center.

    bethy at 11:43 am on April 13, 2012
  17. I had a bankruptcy that was discharged in 2005 and is still showing on my credit report. I am sure that is not helping my score which is 638. Can I get it taken off at this point in time and how do I do that?

    Kathy at 3:02 am on October 16, 2012
  18. It depends on what type of bankruptcy it is. Some take 10 years. Others take 7. This blog post gives some details on how your bankruptcy affects your credit.

    bethy at 1:35 pm on October 16, 2012
  19. I was discharged from chapter 7 bankruptcy a year ago. My Mortgage was not included in the bankruptcy. But it is showing on my credit report as CO Charge off. But I am still paying it I have never been late. Is there any way I can get this off my report so my payments will start improving my credit?

    Donna at 12:10 pm on December 23, 2012
  20. How do I dispute a credit report ?

    Artie L Pence at 6:47 am on January 31, 2013
  21. Jenna

    Hi Artie! Please see this article for more information on how to dispute: https://www.creditkarma.com/article/dispute-credit-report-errors

    Jenna at 11:34 am on January 31, 2013
  22. Another thing after bankruptcy, is learning to save and invest money and not use credit at all. Pay everything cash. If you don’t have the money, don’t buy it. If you cannot afford it, don’t dream of it. Banks and Corporate America are in a racket to ensure you work to exhaustion and that you never get out of the rat race. Unless you decide to.

    Rod at 12:38 pm on February 19, 2013
  23. Many people simple don’t realize how easy is to fix credit after bankruptcy. They are paying thousands of dollar more in interest rates because they have lock of knowledge. The best and the fastest way to repair your credit is to establish your credit from the beginning. First get the secured credit card. Your credit card company will send credit information about your payment to credit bureau each month. The next steps is to apply for secured loans. If you put $100.00 to your bank account and you ask for $50.00 loans then bank can lend you and freeze your $100.00 as deposit in case you fail to give it back. Bank will report your credit information to credit reporting agency Transunion, Experian and Equifax therefore you can establish your credit within the first 12-16 months of regular monthly payment. After that you can apply for regular credit card and start building your regular credit. This way you can get out from the ” sub-prime” to a ” prime”. This will save you thousands of dollars.

    Konrad Korzeniowski at 12:08 pm on March 23, 2013
  24. Check your credit reports about 45-60 days after your bankruptcy is discharged to make sure that the accounts you included in your bankruptcy are all reporting as discharged and a $0 balance. If the information is reporting incorrectly, contact the credit bureaus and insist that the information be updated to reflect the updated status. Incorrect reporting of accounts included in bankruptcy is very common.

    Credit Repair at 10:41 am on May 6, 2013
  25. I just filed for bankruptcy. My Court Date isnt until the beginning of july however. Would it be best practice to wait on the secured card until after the court date and I receive dishcharge papers or just hit the ground rolling now?

    DB at 7:26 pm on May 12, 2013
  26. Careful not to overdo it in trying to rebuilt your credit. I have too many inquiries on my report, My bk drops off in two years.My scores are all 717s and hoping to qualify for better CCs and loans.

    Hector at 1:54 am on May 26, 2013
  27. Your personal credit info is always outdated, never correct.

    perry lambert at 1:47 pm on June 29, 2013
  28. Jenna

    Perry, we pull all of the information you see directly from TransUnion. If something is incorrect, we’d recommend pulling your full credit reports from http://www.annualcreditreport.com and disputing the wrong information directly with the credit bureaus.

    Jenna at 3:06 pm on July 2, 2013

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