When you file for bankruptcy, a lot of people will tell you that re-establishing credit will take years. They'll also warn you that you'll be unable to buy anything on credit for a long time, and that your credit history will be permanently damaged.
These are all lies.
While filing for bankruptcy definitely hurts your credit, you can overcome most of the harmful effects in as little as one year. If you know how to work the credit system, you can have good credit again soon.
1. Get it together.
It's important to have a budget and a savings plan before you start re-establishing. You have to have savings to get re-established quickly, and you'll need discipline to follow a budget and save. When you come up with a plan make sure you follow it. Also, creditors will probably send you bills for debt that was included in your bankruptcy. Make sure you take the time to inform these creditors their debt was included and provide them proof. If these creditors accidentally file a collection against you it can really slow you down.
2. Start hoarding cash and saving paperwork.
While saving a couple of months salary is probably the hardest part of the process, you need to have an emergency cash fund. Besides, you'll need cash for a down payment and secured credit cards. You also need to save all of your important financial documents like pay stubs, bank statements, and bankruptcy documents. Keep them in a safe place because you'll need them to show creditors in the future.
3. Get a secured credit card.
Secured credit cards are a great way to get your credit back on track. Just make sure you don't use them more than once. That's right, get a secured credit card but use it only once. Pay it off the first month you get a bill. Once that first payment is made on time, the credit bureaus will report that you're making payments. Then destroy the card. Even if the card is no longer being used, the credit bureau will still show that you're making payments on time and you will be building credit.
4. Buy a car.
I know that the idea of buying a cheap used car (2-4 years old, less than $10k) may not get your motor running, but remember the goal here is to re-establish quickly. You want to make a few payments on this car (6 to 12) and then trade it in for something nicer. Just make sure you have a down payment before you go shopping.
5. Apply for more credit.
Now that you've bought a car and you have a secured credit card, it's time to get some unsecured credit cards and to start working with a local credit union. Apply for the Discover card, any Visa or MasterCard (as long as there isn't an annual fee), or any credit card offered by your credit union. Most importantly, if your application for a credit card is denied, call and ask WHY. Because most applications are denied by computer, you can often call and get a denial overturned.
6. You can now get the car you want.
You've done all the steps, a year or so has passed, and your credit is officially re-established. Trade in that cheap car you bought in step four (unless you like it of course) and get something that you want with the benefit of having good credit.
With all of these steps, it's important to remember a couple of things. First, save money every month. Saving money is a life skill that everyone should have. Second, remember what caused your bankruptcy and don't let it happen again. Use a budget, avoid impulse purchases, and make sure that you can pay all of your bills even if a major catastrophe occurs.
Author Jason Lancaster has many years of knowledge & experience in the auto industry. He's helped hundreds get a car loan after bankruptcy and has knowledge & experience working with creditors for bankruptcy car loans. You can get a unique content version of this article.
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