Building Credit After Bankruptcy

A bankruptcy is one of the worst remarks you can have on your credit report. As a result, building credit after bankruptcy can be difficult. Your credit scores are destroyed. You have little or no activity showing on your credit report. No one will trust you with new credit.

In an effort to help you reestablish your credit, let’s take a closer look at what happens to your credit as a result of filing for bankruptcy to see if we can’t determine the best way to repair the damage.

FICO Scoring

No one outside of FICO really knows exactly how much a negative remark like a bankruptcy will affect your credit score. Its not as cut and dry as a late payment equals a 50 point deduction and a foreclosure equals a 150 point deduction. There are many more factors to consider.

For example, if you have always had perfect credit and carry a score of say 740, then suddenly you have a 30 day late reported, your score will lose more points than someone who has a history of late payments. Said another way, your score might drop 100 points while the next person who had a score of 620 lost only 60 points.

The engine behind this variance is known as the FICO score cards. To date there are 22 score cards in all. Which score card you fall on depends on the most significant event in your recent credit history. If you just got your first credit card you may fall on a thin credit score card. If you just missed your first payment you might be on a 30 day late score card. Similarly, if you filed for bankruptcy you may be on a bankruptcy score card.

How well you score on each score card depends on how you fair against the average person on that card. You see, FICO did their homework. They asked the credit bureaus for a sampling of consumers who filed for bankruptcy, and then they tracked them over a period of years. From this data they were able to determine behaviors that would accurately determine the likelihood of a consumer defaulting again after their bankruptcy.

How to Use FICO Score Card to Your Advantage

If FICO noted that the average consumer who filed for bankruptcy had no open trade lines and your credit report showed 3 open trades with zero balance and a perfect payment history, then your score would be significantly higher even though you both had a bankruptcy showing on your credit report. The reason is that your credit report is better than the average credit report for those on that score card.

In other words, you don’t have to have perfect credit. You just have to figure out which score card you’re on and be better than average for that card.

The best way to rebuild your credit after bankruptcy is to start while filing. Try not to include all your creditors in the bankruptcy matrix and leave the accounts open. Your attorney may require you to include all lenders who have balances in the matrix, so pay off any lenders who are near zero balance so you can leave them alone.

Next, find a card that doesn’t penalize you for having filed for bankruptcy or apply for another card before the bankruptcy reports. This way you can have more than one or two open accounts with zero balance. Use the card once or twice a month to put gas in the car, and then pay it off in two payments, but no more. This will keep your accounts active and reporting.

Finally, get an unsecured card like the one available at A unsecured card with a credit limit of $5,000 will make you appear to be a secure borrower to many lenders who would otherwise decline you due to your previous history.