Building Credit After a Bankruptcy

After studying tens of thousands of credit reports, helping over 200,000 people, and spending decades as a mortgage broker, I’ve seen the same surprising truth play out again and again: most people are in a better position to rebuild after bankruptcy than they were before it. After all, they are no longer struggling to pay their bills.

In fact, with the right steps, your score can hit 720 in as little as one to two years.

The key is knowing what to do, and when to start. (Spoiler: it’s now.)

In this article, I’ll walk you through what happens to your credit score after bankruptcy, how to start building credit after a bankruptcy, and which credit-building moves make the biggest impact. 

FAQ: How soon can I start building credit after a bankruptcy?

Answer: Right away. In fact, most people are surprised to learn that it’s easier to rebuild your credit score after bankruptcy than before. That’s because you’re in a better financial position after bankruptcy: your overdue balances are gone, and you’re no longer juggling payments you can’t afford.

On the other hand, before the bankruptcy, you were likely maxing out your credit cards, and you might have been paying your bills late, which are both things that can cause your credit score to drop. 

If you start rebuilding your credit score right away, your credit score can increase to 720 (which is considered a great score) in just one or two years. 

We recommend starting a credit-rebuilding strategy the same month your bankruptcy is discharged (Chapter 7) or confirmed (Chapter 13). Programs like 7 Steps to a 720 Credit Score and the Credit Rebuilder Program are designed to guide you through this process from day one.

Watch & Learn: Will Bankruptcy Destroy Your Credit?

FAQ: Will my credit score go up or down when my bankruptcy is discharged?

Answer: It depends on where your score was before filing. If your credit was already low because of missed payments, maxed-out cards, or accounts in collections, your score might go up once the bankruptcy is discharged. That’s because many of your overdue balances get wiped out, and your debt-to-income ratio improves overnight.

If your score was high going into the bankruptcy, you might see a drop. But even then, the dip is usually short-lived if you take the right steps to rebuild your credit after the bankruptcy. Think of your bankruptcy as a clean slate. If you adopt new habits after the bankruptcy, your score can climb to 720 in 12 or 24 months. Namely, you should:

1.   Open three new credit cards
2.   Pay your credit cards on time and keep the balance low (no higher than 30 percent of the limit) 
3.   Remove all errors from your credit report
4.   Add an installment account to your credit report

You can learn more by joining free credit-education programs like 7 Steps to a 720 Credit Score. 

FAQ: What’s the fastest way of building credit after bankruptcy?

Answer: The key is to start right away. A lot of people think they have to wait 7 to 10 years for the bankruptcy to fall off their credit report before they can do anything, but that’s the slowest possible path.

Here’s what most people don’t realize: Credit bureaus care more about what you’re doing now than what happened in the past. The newer your positive behavior, the more weight it carries. So if you start rebuilding today, your score can start improving in just a few months. Most people who follow a focused plan see real progress within 12 to 24 months, even with the bankruptcy still on their report.

But if you wait seven years to get started, you’re really looking at eight or nine years before you’re back in good shape. That’s a long time to sit on the sidelines.

So what’s the game plan?

• Open the right kinds of credit. That means that you open three new credit cards and one installment account after your bankruptcy has been discharged or confirmed. This gives the credit-scoring bureaus new information on your patterns of behavior after the bankruptcy.
• Keep your balances low on your credit cards. Aim to use less than 30% of your available credit, but using less than 10% is even better. That tells lenders you’re not relying on credit to get by.
• Pay on time, every time. Even one late payment can set you back. Automate where you can.
• Fix reporting errors. After bankruptcy, your credit report can be full of mistakes related to the bankruptcy. Get them corrected so you’re not being unfairly penalized.
• Follow a system. Programs like 7 Steps to a 720 Credit Score and the Credit Rebuilder Program take the guesswork out of the process and help you stay on track.

Don’t wait. Every month you delay is a missed opportunity to show the credit bureaus that you’ve changed—and to get closer to the score you want.

Watch & Learn: Building Credit After Bankruptcy Through a Credit Rebuilder Program

FAQ: Can I qualify for a credit card after filing for bankruptcy?

Answer: Yes, though you may pay high interest rates on traditional credit cards. Credit cards designed for people with poor credit often come with a high APR, or Annual Percentage Rate. This is the total cost of borrowing over the course of a year, including interest and fees. The higher the APR, the more you’ll pay in interest if you carry a balance from month to month.

If you’re having trouble qualifying for a traditional credit card, you’re not out of options. One workaround is to apply for a secured credit card. Another is to ask someone you trust to add you as an authorized user on their credit card. Both can help you rebuild credit, but they work in very different ways, and each comes with its own pros and cons.

Building Credit After Bankruptcy Through a Secured Credit Card

A secured credit card is a great starting point if you’re rebuilding your credit, but it works a little differently than a traditional credit card. To open one, you’ll need to make a refundable deposit (usually a few hundred dollars) that becomes your credit limit. So if you put down $300, your limit is $300. 

But here’s something a lot of people misunderstand: the deposit doesn’t go toward paying your monthly bill. It just sits there as collateral. You still use the card to make purchases, and then you’re expected to pay off those charges, just like you would with any other credit card. If you don’t pay the bill, the lender can keep your deposit and report your payment as late. If you use the card responsibly and eventually decide to close it, or if you graduate to an unsecured card, then and only then do you get your deposit back, as long as your balance is paid in full.

The upside is that most secured cards report to all three credit bureaus, which means every on-time payment helps rebuild your credit. Just make sure to pay the bill in full and on time, and keep your balance low.

Be sure to read this article: “Is It Possible to Get Credit Cards After Bankruptcy?” And be sure to check out our list of credit cards designed for people with poor to fair credit.

Building Credit After Bankruptcy Through Authorized User Accounts

An authorized user account works a little differently. This is when a friend or family member adds you to their existing credit card. You don’t have to apply or put down a deposit. You’ll benefit from their payment history and length of credit, which can give your score a nice boost, as long as they’re responsible with the account. If they carry a high balance or miss payments, it can actually hurt your score instead of helping it. So make sure it’s someone you trust, and that they understand what’s at stake.

Neither option is perfect, but both can be powerful tools if used the right way. Some people even do both: they get a secured card to build their own credit while becoming an authorized user to strengthen their history even faster.

FAQ: How many credit cards do I need to start building credit after bankruptcy effectively?

Answer: Three. That’s the number we recommend if you’re serious about building your credit after bankruptcy.

That might sound surprising, especially if you’ve just been through a financial crisis like bankruptcy, but here’s the thing: this isn’t about going into debt. Opening credit cards after bankruptcy is about proving to the credit bureaus that you can use credit responsibly now, which is how you rebuild trust and how your score starts to improve. 

Opening three credit cards gives you more room to show positive behavior. About 35 percent of your credit score is based on your payment history, so when you open three cards after a bankruptcy, and then pay them on time, you give the credit-scoring bureaus more data about your new-and-improved behavior. 

And here’s an important tip: try to open them around the same time. One factor that affects your score is the age of your accounts. If you open one card now and wait six months to open the others, the new ones will drag down your average account age. But if you open all three close together, they’ll age together, and that helps your score in the long run.

You don’t need to spend much. Use each card for something small, like a streaming service or a gas fill-up, then pay it off in full every month. 

It might feel strange at first, but these three cards can become the foundation of your financial comeback. And the sooner you start, the sooner they start working in your favor.