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Rebuilding credit after bankruptcy

Filing for bankruptcy is not something one should take lightly. One of the reasons why debtors need to think carefully before filing for bankruptcy is that their filing will remain on their credit report for quite some time. According to Experian, it can be 7 or 10 years, depending on the type of bankruptcy filing. A Chapter 7 filing remains on one’s credit for 10 years, and a Chapter 13 filing remains for seven years.

Following a bankruptcy filing, one usually also experiences a drop in one’s credit score, which can impact the ability to obtain a decent credit card. Typically, available options involve high interest and fees.  One may also pay more interest on loans after a bankruptcy. Because of this, it is imperative for those who have filed for bankruptcy to get on a track of rebuilding their credit. 

The answer to rebuilding credit is not to avoid it altogether, though, as some mistakenly think. Rather, the key is to make careful and responsible use of what credit is available. Usually that means starting with an unsecured credit card. With unsecured credit cards, one makes a deposit which serves as collateral. A debtor who makes wise use of unsecured credit will soon enough have better opportunities come along.

Anybody who files for bankruptcy needs to be aware of the challenges they will face with respect to credit, but should also be encouraged in the understanding that it is possible to rebuild one’s credit. By utilizing credit wisely after bankruptcy, the process of rebuilding one’s credit is quickened. 

Source: Fox Business, “How Do I Establish Credit After Bankruptcy Discharge?,” Justin Harelik, April 22, 2014.

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