It’s natural to be stressed about your credit rating after bankruptcy. The good news is that your credit score can be repaired.

You'll need to be patient and work hard, but you will eventually see your credit score start to rise. If you follow these steps, bankruptcy will be just a small detour on your journey to financial stability.

Build a Strict Budget

After saving 10-15% of your income, budget your needs and wants.  

What do you need to spend money on?  Plan on spending 20-25% of your take-home pay on housing, 5-10% on utilities, and about 15% on transportation. Wait for sales, and spend 5% on clothing. Figure on 15% for food. Reach this goal by resisting the convenience of fast food. Reserve eating out for special occasions, and view it as a want, not a need. 

After savings and needs, be careful about spending your extra money on wants. Avoid impulse purchases. Is it possible to save more? Is there a cheaper or better way of paying for your needs?

Build Stability and Credibility in Your Community

Your goal is to prove you are trustworthy and reliable. Keep a steady job. Don’t switch employment just for a small pay increase. Maintain decent, affordable housing. Resist the temptation to move often, and don’t become “house-poor.” Become involved in a local charity, board, or committee.

Check Your Credit Report

Six months after your bankruptcy is over, check annualcreditreport.com.  Make sure they show your old debts as “discharged in bankruptcy” with “zero dollars owed”.  If they don’t, dispute them, in writing. See our earlier report, How to Dispute Errors on Your Credit Report.

Build a Relationship with One Local Bank

Open a checking and savings account, and use them.  After you’ve saved some money, take your paper budget, your written proof of on-time medical, utility, rent, or other debt payments, and visit the bank’s loan officer. Bring a down payment and apply for a small loan for some practical, need-based item. 

Make the full payment every month, and never miss or pay late. Consider using automatic bill pay.  After the loan is paid, do this again.

Build a Relationship with One Credit Card

You’ll get lots of offers in the mail. Charge only what you could pay in cash. Never carry a balance over 10% of your credit limit. For example, with a $300 credit limit, never charge over $29 each month. Pay the monthly balance, in full, every month.  Always pay on time.

Be Patient

This plan will eventually increase your credit score. While this will take time and sacrifice, the financial freedom you earn, and the money you save, will be worth it.

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