Debt Management and Your Credit Score

How to repair your credit record after bankruptcy

In this blog you’ll discover how to rebuild your credit record after declaring bankruptcy.

Man looking through his personal finances to repair his credit record after being declared bankrupt.

Although bankruptcy can be a difficult time in your life, it is not the end of the road. In fact, bankruptcy allows you to move forward by getting rid of debt that’s holding you back from achieving financial goals and saving towards a brighter future, especially if you stay on top of your credit record.

If you have recently declared bankruptcy, then your credit score is most likely not on your side. It is important to understand that there are actions you can take to repair your credit record after bankruptcy.

How Does Bankruptcy Affect Your Credit Report

Declaring bankruptcy is a scary process and not to be taken lightly. Filing for bankruptcy is usually a last resort when debts can no longer be paid. There are normally two types of bankruptcy an individual may apply for – Chapter 7 or Chapter 13.

  • Chapter 7 is for individuals with a limited income that can no longer pay their debts.
  • Chapter 13 is when the individual can afford to pay something towards their debts. Usually, payments are made for up to 5 years and then the remaining debt is discharged.

Once bankruptcy has been agreed upon, your credit record will suffer immediately. Estimates show that credit scores take an instant reduction of more than 100 points! This will significantly affect your ability to get credit.

Bankruptcy is a public record and can show on your credit report for up to 10 years. That’s a long time, but by taking the following steps you can mitigate this and start repairing your credit record.

How To Repair Your Credit Record After Bankruptcy

By putting the following steps into action, it’s perfectly possible to repair your credit record after bankruptcy.

Check Your Credit Report

Your credit report will be impacted by the bankruptcy. Therefore, it’s important to regularly check your credit report to make sure that incorrect data isn’t further affecting the report. All accounts discharged through bankruptcy should have an account balance of £0.

However, there are cases when creditors continue to report a balance is owed. By checking your credit report often, you can make sure the accounts discharged via bankruptcy show the correct balance of £0.

To get a credit report there may be a charge of a few pounds. The good news is that Annual Credit Report is currently providing free credit reports until April 20, 2022. These free reports are available weekly. Make sure to get yours and keep an eye on those balances! If any debts do show incorrectly, contact the credit bureaus to raise a dispute and get your credit report corrected.

Pay Everything Else On Time

There are some accounts that aren’t always included in a bankruptcy. Student loans, child support, and certain taxes are examples of accounts that can’t always be included. Although exceptions may apply in rare cases.

To help your credit report continue to improve, it’s vital you pay everything not included in the bankruptcy on time. If you fall behind on these payments, they could be added to your credit report. The hard work you’ve put in to repair your credit history could easily be undone by falling behind on any account.

Make sure to stay on top of all payments. Not only will your credit score rise, but future lenders can now see a history of good payments despite the past bankruptcy.

Beware Of Using Credit Repair Companies

Credit repair companies offer to help people get their credit reports fixed. If there are errors on the report, they will handle getting this corrected by working with the relevant credit bureau. You may decide to use a credit repair company if you have multiple corrections that are needed and don’t have the time to deal with it yourself.

The prospect of dealing with credit bureaus may feel daunting. Some people would rather pay a fee to a professional credit repair company to make sure everything does get done correctly. However, one thing a credit repair company cannot do is remove anything that is accurate. Any company offering to get a bankruptcy or other item removed from your credit report will not be able to do this.

If you do want to get help from a credit repair company, then check what they offer thoroughly. Any claiming they can remove a bankruptcy may not be reputable.

Take Out New Credit

You may fear taking out new credit. Especially, if previous money problems have ended up in bankruptcy. However, one of the best ways to rebuild credit is by taking out more credit! Getting new credit may be difficult due to your financial history. Many lenders will decline someone that has previously been declared bankrupt.

The good news is that there are other credit options you can try. You can look for secured credit cards or loans. This means you will put a security deposit against the account. Provided you make payments on time the account can be made unsecured in the future.

These accounts usually come with restrictions and higher interest rates. Make sure to pay on time every month and your credit report will enjoy a boost! You might be used to getting PayPal money as a payment method for any side hustles, but another option to consider is applying for PayPal Credit. PayPal do report to the credit bureaus and using PayPal Credit wisely can mean a boost to your credit score.

Think About Having A Co-Signer

To rebuild your credit report quicker you might be able to get traditional credit cards or loans if you have a co-signer.

Generally, a family member or friend could be used as a co-signer. Provided you make the payments on time, your credit report could be repaired much faster. Don’t forget that if you don’t pay on time your co-signer will be affected as well!

Stick To One Job

Changing jobs doesn’t directly affect your credit score. However, lenders look at all your data to build up a picture of who they perceive you to be. Multiple jobs in a short space of time are usually considered a sign that you may not be reliable. 

Working the same job long-term is a much better indicator that you have stability in your life. It doesn’t guarantee approval, but it certainly helps!

Pay New Credit Cards On Time

Time and a solid track record of making payments are two of the best ways to repair your credit record. That’s why it’s vital that you pay for any new credit cards on time every month. If you can, pay the balance in full each month. Your credit record will be boosted, and you won’t be in debt!

It’s worth knowing that one late payment can show on your credit report for 7 years. If you have bankruptcy as well, then your chances of obtaining any credit will be dramatically lowered. Pay those credit cards on time!

Aim For A Low Balance

If your credit cards are constantly maxed out, then this will have a negative impact on your creditworthiness. Most of the time aiming for a balance of less than 30% of your credit limit is recommended. When rebuilding credit, try to run your balances at less than 10% until your credit record improves.

Don’t Make Multiple Credit Applications

Credit applications made within the last 12 months will affect your credit record. If you have a lot of applications, then lenders may be wary of approving any future applications.

Multiple applications are often a sign that a person is desperate. Instead, concentrate on paying everything on time and wait a few months before applying for further credit.

How Long Does It Take To Repair Your Credit Record After Bankruptcy

There are two factors that have a significant effect on how long it takes your credit record to be repaired. First, what type of bankruptcy was it – Chapter 7 or Chapter 13? The other factor is what steps has the debtor taken to improve their score.

Chapter 7

A Chapter 7 bankruptcy will show on your credit report for 10 years. Once the 10 years have passed, then the bankruptcy will be completely removed from your credit record. 

Although you will suffer an immediate reduction in your credit score, improvements may be noticeable within 1-2 years after discharge. This is because your debt-to-income ratio will have been instantly reduced when accounts forming part of the bankruptcy were closed.

Chapter 13

If you file a Chapter 13 bankruptcy, this will stay on your credit record for 7 years. Once the Chapter 13 bankruptcy has been discharged it can take up to 18 months to start improving your credit score.

How To Repair Your Credit Record After Bankruptcy – Wrap Up

Repairing your credit record could take years. It’s understandable that you want to get it back to an excellent score as soon as you can. If you try to rush things, you could make a costly mistake that sets you back again. Instead, follow the advice above. Make payments on time, take out new credit you can afford, and regularly check your credit record. If you do this your credit record will be repaired much faster!

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