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. Make a plan.
Come up with a budget and a savings plan. You need to figure out how you're going to save. Also, make sure all of your old creditors know that you no longer owe them money. If they send you a collection notice, take care of it right away. Finally, reflect on what caused you to file bankruptcy in the first place and make sure you don't repeat the same mistakes.
2. Start hoarding.
You'll need to save as much cash as possible as quickly as possible. You need cash to get a secured credit card, for a vehicle down payment, and also for an emergency fund. You also need to hoard all of your financial documents. That means your bankruptcy paperwork, your bank statements, pay stubs, and all of your bills. Keep them organized and in a safe place because future creditors may ask for copies.
3. Apply for a secured credit card.
Once you're able to save up a little bit of cash it's time to get a secured credit card. Secured credit cards are credit cards secured by a cash deposit, with the amount of your deposit being the amount of available credit. The key to these cards is to use them only once and then destroy them. When your first bill comes, pay the card in full. By doing this you'll trick the credit reporting agencies into giving you credit for making payments in full every month, even though you've only used the card once. By destroying the card, you make sure your balance stays at zero.
4. Buy an inexpensive pre-owned car.
Choosing an inexpensive pre-owned car is the easiest way to get approved for a loan. It's also the best car to buy if you plan on trading it in within the next year. Ideally, you would buy a cheap car and then trade it after 6 to 12 payments have been made. This way, you'll get credit but you don't have to keep the car forever. By going used and cheap, you'll lose less money when you trade it in.
5. More credit cards.
If you have a secured credit card (or two) for a few months and your car payment has been paid a couple of times you probably qualify for a regular, unsecured credit card. Make sure to apply for a card from the big names like Visa, MasterCard, or Discover. Whatever card you get, it's important that there is no annual fee. You should also try to get a credit card from your local credit union. If your application is denied, that's OK. Most denials are based on computer analysis which is often incorrect. Simply call the credit card company and ask them why you were denied and what you can do to get approved. Often times your denial will be overturned.
6. Get the car you like.
The goal you can now get the car you want after your bankruptcy. If you've followed all of the previous steps, you will have a good credit history AND a good credit score. Buying the car, truck, or SUV you want is now firmly in your grasp.
While re-establishing credit after a bankruptcy is fairly easy, it's also easy to slide back into a bad credit pattern. Make sure that you are always saving money -- if you have savings, you have options. Also, take a look at your life and your spending and compare it to your habits before you filed bankruptcy. Are you doing some of the same things as before? If so, make a change. While re-establishing after your first bankruptcy is simple, re-establishing after a second is very difficult.
