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You can rebuild your credit after bankruptcy

With the sluggish economy of the past five years, many people have found themselves in unmanageable debt. Unable to keep current on their bills, many turned to bankruptcy for relief. However, what happens after bankruptcy ?

It is true that bankruptcy has an adverse affect on your credit and stays on your credit history for 7 to 10 years. Although there is no quick way to erase your bankruptcy from your credit score, if you take certain steps, you can significantly lessen its impact on your ability to get credit.

Consider a credit card

Over time, if you can show that you can handle credit responsibly, your score will slowly increase, so getting a credit card may be a useful first step in rebuilding credit.

When considering a credit card, a secured card may be the easiest type of card that you can qualify for after a bankruptcy. Unlike other credit cards, secured cards require a deposit that matches your credit limit. For example, if you would like a $1,000 limit, you must deposit 1,000 into a savings account. Once you have responsibly used a secured card for a certain time, the issuer of the card (or another issuer) may be willing to offer a traditional credit card.

One final note with credit cards: be sure that they report your payment history to the three major credit-reporting agencies before getting the card. Your credit score will likely not be affected if your responsible use of the card is not reported.

Open an account

After you have filed for bankruptcy, you may want to qualify for a loan or mortgage in the future. Besides having a good credit score, opening a checking or savings account can help you do just that. As lenders will typically want to see documentation of your finances, having an account will provide you with the necessary bank statements.

Additionally, to qualify for a loan or mortgage, lenders like to see a pattern of savings. By saving at least 10 percent of your paycheck in a bank account, you will be able to document your responsible spending habits.

Pay bills on time

As about 35 percent of your credit score is determined by your payment history of bills (and credit cards), it is important to ensure that your bills such as your rent and utilities are paid on time. Additionally, consistent timely bill payments can help you qualify for a loan or mortgage, as lenders may want to see evidence of payments for the prior 12 months.

Although it can take a while to raise your credit score up to pre-bankruptcy levels, it can be done given time and responsible behavior. If you are considering bankruptcy, the advice of an experienced bankruptcy attorney is invaluable. In addition to determining whether bankruptcy is right for you, an attorney can advise you on how it will affect your situation.