Clean up your credit report
It is not unusual after a bankruptcy case is closed for credit reports to continue to show accounts as open and overdue, when in fact the debts were discharged in bankruptcy. Get a copy of your credit report from each of the major credit reporting agencies six to 12 months after your bankruptcy case is closed. You are entitled to a free report annually from each of the major reporting agencies, and you can challenge information that you believe is inaccurate.
Every debt included in your bankruptcy should show a zero balance due and have the notation “included in bankruptcy.” The history of delinquencies can be reported, but the balance must be zero. It is in your best interest to have the “included in bankruptcy” notation on each debt discharged in your bankruptcy, because it indicates to future creditors that the debt is no longer enforceable. Also, if you file a bankruptcy and voluntarily dismiss it before debts are discharged, credit reporting agencies must report the dismissal as well as the bankruptcy filing.
If you find these or any other serious errors on your credit report, take steps to dispute the debts. If you cannot get the credit reporting agencies to make the necessary corrections, you may have other remedies under the Fair Debt Collection Practices Act, and you should contact an attorney.
Use credit carefully
After a bankruptcy you can improve your credit-worthiness by saving money and using credit carefully. There are two types of credit accounts that will help rebuild your credit score: installment loans and revolving credit. If you can get started with one installment loan and one credit card, you can begin build a clean credit record and establish yourself as a reliable payer of debts.
To get started, open a savings account and make regular deposits. Take out a small installment loan using the savings account as collateral, and make the payments on time. At first you may have trouble qualifying for a regular, unsecured credit card. So instead, apply for a secured credit card with a low limit, using your savings account as collateral. Use the card regularly, but don’t use the entire credit limit, and pay the balance off every month. Take these steps to avoid the common pitfalls: (1) don’t get into the habit of making only the minimum payments due; and (2) learn now not to charge more than you can pay off every month. Light, regular use of a credit card, paying debts down or completely off every month, and making timely payments are the best financial habits you can develop for building good credit.
Be cautious about applying for credit
Credit reporting agencies are notified each time you apply for credit and the application is noted on your record. Keep tight reins on the number of credit checks that are run through your account – don’t allow several credit applications to be made all at once when you’re working on credit repair. Too many potential lenders checking your credit in a short period of time will have a negative effect on your credit score. Also, each new account you open reduces the relative age of your credit history, which has a negative effect on your credit score. Regular payments on a few long-standing accounts with balances well below the account limits are better evidence of creditworthiness than are new accounts or a large number of credit accounts.
Refrain from consolidating debts and keep old accounts
Once you are able to obtain regular, unsecured credit accounts, resist the temptation to consolidate several accounts into one. For the purpose of building credit, it’s better to pay off accounts or pay them down than it is to transfer balances or consolidate accounts. Your payment history is very important when you’re trying to improve your credit report, and the older your history of regular payments on any particular account, the better evidence it is of creditworthiness.
Don’t close old accounts just because you’re not using them. If you need to close some accounts, and you are working to build or improve your credit, close newer accounts first. The newer accounts may have better interest rates, but the older accounts have the all-important payment histories. Moreover, closing accounts, even old accounts that you aren’t using, changes the ratio between your credit limit and the amount of credit you utilize. When you close an account, you reduce the total credit available to you without reducing your total debt. That brings you nearer to maxing out your available credit, which can lower your credit score.
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