If you’re concerned about how to rebuild credit after bankruptcy, you are far from alone. This is a question we hear often, both from people considering bankruptcy and from people who have already filed for bankruptcy and are now looking to build better financial futures. Fortunately, it is very possible to rebuild your credit history and raise your credit score, often within one to two years after bankruptcy.

Often, Credit Scores Increase after Discharge

While we are primarily looking at actions that you can take after bankruptcy to rebuild your credit, you may find that you get a jump start immediately after bankruptcy. One study from the Philadelphia Federal Reserve found that the average bankruptcy petitioner’s score increased by more than 70 points after discharge. Increases were slightly larger for Chapter 7 bankruptcy filers than Chapter 13 filers.

Many people are surprised to learn that credit scores often increase shortly after discharge, but it is important to remember that most people who file for bankruptcy protection have already fallen behind. That means there are typically several negative entries on their credit reports and affecting their credit scores before they file for bankruptcy.

What is a Good Credit Score? 

Different creditors have different standards, and your credit score isn’t the only factor they’ll use in determining whether to extend you credit and what terms they’ll offer. And, credit scores differ slightly depending on which model is in use. So, there isn’t a magical number at which your credit score becomes “good” for purposes of access to credit and better rates.

Average credit scores in the south are lower than in any other region of the U.S. The average credit score nationwide as reported by Transunion is 669. Here are some average scores closer to home:

Average Credit Score in Tennessee: 657

Average Credit Score in Knoxville, TN: 694

Average Credit Score in Alabama: 648

Average Credit Score in Birmingham, AL: 633

Average Credit Score in Florence, AL: 672

Average Credit Score in Huntsville, AL: 672

Average Credit Score in Montgomery, AL: 617

Average Credit Score in Decatur, AL: 657

Average Credit Score in Anniston, AL: 639

Average Credit Score in Mississippi: 642

Average Credit Score in Jackson, MS: 598

Average Credit Score in Hattiesburg, MS: 659

Average Credit Score in Vicksburg, MS: 650

For general reference, TransUnion assigns score bands letter grades, A, B, C, D and F. They’re giving an F to anyone at 600 or below, and a D to anyone with a score of 601-657. More than ⅓ of Americans fall into the D and F categories. And, the national average of 669 puts a person at a low C. 

But, that doesn’t mean great credit scores are out of reach. Nearly half of Americans are getting an A or B on TransUnion’s scale–meaning they have scores of 720 or above.

Steps for Rebuilding Credit after Bankruptcy

Of course, the little jumpstart you may receive immediately after discharge is just the beginning. If you want to build a strong credit history and a good credit score, you will have to be strategic and invest some effort.

Here are some of the steps you can take shortly after bankruptcy to begin rebuilding credit:

Get Serious about Budgeting

Most people thinking about rebuilding credit skip straight to considering how they can obtain new credit accounts and start building a positive credit history. That is, of course, an essential step. But, it’s not the first one. First, you’ll want to be sure you keep those new accounts current. That certainty requires more than a positive attitude about managing your finances moving forward–it requires math.

It’s easy to overlook small expenses that add up, or to have the wrong general idea about your income versus expenses. To create financial stability, you’ll need to know exactly how much money you have coming in each month and exactly how much you’re spending. If you’re spending more than you earn, all of your earnings, or even very close to all of your earnings, it’s time to look at either increasing income or finding expenses you can cut.

Get your plan in place and make sure it’s working reliably before you take on new credit obligations. Timely payments have never been more important.

Review your Credit Reports AFTER your Bankruptcy Discharge

There is a very defined and precise course to follow if there are errors on your credit reports AFTER your bankruptcy is discharged.  In a nutshell, creditors who have been discharged in bankruptcy are generally only allowed to show that there is a zero (0) balance on your credit report and that the debt was discharged in bankruptcy.  Any other derogatory information is NOT allowed as long as the case has been discharged. This blog post explains this exacting process in great detail. 

New Credit Cards that you get after the Bankruptcy

As strange as it sounds, you will be inundated by credit card offers after your bankruptcy is discharged.  Use them sparingly and try to keep them at a zero balance each month or as close to zero as you can. Always, always, always make your required (or more!) payments on time and NEVER be late on any of your payments.   Also, if you do have a credit card or credit cards and you have been fortunate enough to pay them down to zero and you are keeping them at a zero balance, do NOT cancel or close those zero balance credit cards. Doing so will have a negative effect on your credit score.   Just keep the zero balance credit cards open and put the cards away in a safe place and try to keep them at a zero balance. For a variety of reasons, that will have a positive credit score benefit to you.    

Savings Accounts    

Open and keep and hold open a savings account or two with at least one or two banks.   Check the fees that you are being charged for a savings account, which are hopefully zero, and make sure that you keep at least one or two accounts that have just savings and are labeled savings accounts.  This will have a positive effect on your credit score. The thought is that you never need to use it and just leave that money there but again the credit score assistance for you will be worth it. Note that this is separate from a checking account or any other type of account and make sure your bank has it labeled as a savings account only.  Keep at least $25 in all of your savings accounts and do not touch that money. Also, as mentioned, be mindful of any bank fees you may be charged and, if there are fees, ask your bank to waive them every month.   

Stay Absolutely Current on ALL Obligations

This may seem like a simple concept but it will pay great dividends on your credit scores.  For all of your obligations such as mortgages, rent, utilities, vehicle payments, cell phone bills, etc., by staying current each and every month, your credit scores will improve automatically. 

Don’t Apply for Too Much Credit

It’s natural to be eager to rebuild credit, but you can’t afford to jump in without assessing your options and making strategic decisions. Applying for too much credit in a relatively short period of time can hurt your credit score. So, don’t make the mistake of thinking “it can’t hurt to try.” To  the contrary, it can hurt to try too often. Every time your credit report is looked at, the “pull” is notated on your credit reports and lenders get squeamish if they see these pulls. The fewer “pulls,” the better! When looking to get credit, be certain as to exactly why and if you really need the particular credit for which you are applying.  Explore your options before you make any applications, and open new accounts gradually over time, not all at once. 

Review Your Credit Reports Regularly

There’s more to taking control of your credit than tracking your score. Inaccuracies on your credit report can have a significant impact on your credit score. To ensure that you’re getting the full benefit of your bankruptcy discharge and the efforts you make after bankruptcy, check your credit reports from all three major credit reporting agencies and dispute any inaccurate entries.

Depending on your circumstances, there are other strategies you may put to work as you rebuild your credit. For example, you might ask a better-established relative to co-sign for a personal loan or automobile loan. Whichever approach you take, the same basic principles apply:

  • Don’t rush: take your time and be strategic
  • Allow some buffer: never take on debt you won’t be able to pay if you need an unexpected car repair or dental work
  • Monitor your progress: a free service like CreditKarma or the tracking provided by your credit card company will help you see your progress and understand what boosted your score

Here is detailed information that we provide to all prospective and current clients regarding how they can get their true “free” credit reports.  

You hear about all manner of ways to get “free” credit reports.  Trust us, there is a catch there somewhere.  

Pursuant to the Federal Trade Commission (FTC) rules, all individuals in the United States are entitled to one free credit report each year from each of the three credit reporting agencies, Equifax, Experian, and TransUnion. The ONLY WAY to get your actual, true free credit reports is from www.annualcreditreport.com.

If you are contemplating a bankruptcy filing, it is, in our opinion, acceptable to get your credit reports directly from the website. Before you go to this website, PLEASE make sure your computer is attached to a working printer and that you PRINT all pages of ALL of your credit reports as you will only be able to view them one time and you will NOT be able to visit the site again.  This is very important!

If, however, you need credit reports for any other purpose and, most importantly, if you are contesting something you think should not be on your credit report, DO NOT get the credit reports online at this site. What you need to do is to get the mail-in form from from here and fill it out and physically mail it in to the Atlanta address on the form itself.  For credit report disputes, it is very important that you do not agree to any type of binding arbitration which may preclude you from filing a lawsuit if your credit reports are damaged through no fault of your own. As a result, it is advisable to get your credit reports this way only if you believe you will have to dispute your credit report. As a general rule and as explained above, for bankruptcy purposes, getting all three credit reports online, again, is acceptable and it is probably the quickest way for you to get them. Please note that sometimes when you mail in the form for the request, you may be told by that website that it cannot verify that you are who you say you are. As a result, when you mail the form in, you may want to include a utility bill or a phone bill or some type of bill that ties you to the address where you state that you reside which is where the credit reports will be mailed. Click here for a copy of the form for you to print out, fill out and mail in to the Atlanta address on the form.

Before we leave this subject, however, one last thing as a relates to credit monitoring. Yes, you can pay for your credit monitoring if you’d like to do so and it will cost you a monthly fee in order to do that from several monitoring companies that are out there. A way to monitor your credit reports, however, for free (really, free!) is to request only one of the big three credit reports from annualcreditreport.com each time you order and then do that every four months, getting only one each time. Over the course of a year, this would allow you to be pretty on top of what is happening on your credit report at no charge to you. Of course, it would require being diligent about ordering the next credit report in line every four months and also keeping track of the previous one that you ordered. Just a thought if you want to be able to do this on a recurrent basis every year without paying a dime for it.

Ron Sykstus
Written by Ron Sykstus

Ron Sykstus is a Managing Partner of several of the Bond & Botes Law Offices throughout Alabama. He holds a Bachelor of Science from the University of Arizona, Tucson, and a Juris Doctorate from the Northern Illinois University College of Law. Ron has served in numerous positions throughout the U.S. Army and now utilizes his expertise in the areas of VA issues, security clearances, military law, and bankruptcy to assist his clients when they need it most. Read his full bio here.

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