Create Your Post-Bankruptcy Credit Rebuilding Plan

Dear Credit Care,

For 32 years I had excellent credit. But, like other folks, things went downhill. We had our home repossessed and could not make all the credit card payments. Our attorney advised us to file for bankruptcy, so we did. I have tried to rebuild my credit since then. I have been turned down by two different bank cards several times each. We now have a debit card, but when do you get a chance to show the banks that we are seriously trying to get our credit score back up? 

- Dorothy

Dear Dorothy,

Rebuilding a positive credit history after a bankruptcy takes time and patience. Because you did have excellent credit for many years before the bankruptcy, you know what it takes to manage your credit successfully. What you need now is credit to manage.

Since you have been declined several times for bank-issued credit cards, you may need to start with a secured credit card. These cards are secured by your own personal deposit in an account with the bank that issues the card. You can use the card just as you would any other credit card. More importantly, the card issuer may report the card to the credit bureaus, which will help illustrate to potential creditors and any other persons reviewing your credit report that you can manage a credit card account.

Not all secured card issuers report to the credit bureaus, so be sure you choose a card that reports to all three major credit bureaus. To ensure that the card helps to build the credit history that you will need to improve your credit score, use the card every month and make all monthly payments on time and as agreed.

Another option for you to rebuild your credit is a passbook savings loan. Much like a secured credit card, these accounts are secured by a deposit from you at the bank issuing the loan. You repay the loan with a regular monthly payment for a typical term of two years. Again, when shopping for this type of loan, ask whether the lender reports the loan to the three major credit bureaus. To achieve the goal of rebuilding credit, the loan must be reported.

With both a secured credit card and a passbook savings loan, your credit report will reflect a positive payment history for revolving and installment accounts. Regular, on-time payments as well as a variety of positive credit accounts reflect well on your ability to handle credit. Handle them well and your credit report will, in time, increase your credit score.

Lastly, to help avoid problems moving forward, I encourage you to save at least six months' worth of current living expenses in an emergency savings fund. When unexpected expenses or interruptions of income occur, you can pay for them with your savings, rather than relying on credit cards.

Handle your credit with care!