Ask an Attorney: How long does it take to rebuild credit after bankruptcy?

Question: My bankruptcy was just discharged, and I feel like I’m finally able to start living again after many years stuck in debt. Unfortunately, my credit score is low and I’m considered a subprime borrower by the lenders. What can I do to start rebuilding my credit score?

Answer: While the task may seem daunting, it’s absolutely possible to rebuild your credit score following a bankruptcy. In fact, when handled properly, many people can achieve a credit score of 700 or more within two years.

The process of rebuilding your credit will take patience and dedication, but it’s one of the most important steps to correcting your financial situation. You don’t need a sterling credit report or the highest score possible, but you will need to make improvements to increase your score — and loan-worthiness — going forward.

Having a low credit score can make qualifying for a loan of any kind (including credit cards, car loans and home loans) difficult. Even if you’re approved, your interest rates are likely to be high, which can lead to more debt down the road.

10-30 days after discharge

Check your scores

You’re entitled to a free FICO credit report from the three major credit reporting agencies once a year. You can request all three from annualcreditreport.com, over the phone at 1-877-322-8228 or by mail.

Read the line items of each report carefully. If there are any errors in the reports, you’ll need to file a dispute with the credit reporting agency (CRA) to have them corrected. An error may appear on one credit report, two or all three, and you’ll need to file a dispute for each report that contains the error.

To file a dispute, send a letter to the appropriate CRA noting the inaccuracy and include a copy of your discharge letter.

It can take the CRA up to 30 days to process the dispute, and it may require follow-up claims before it’s corrected. If you need help with credit repair, contact an attorney for Fair Credit Reporting Act (FCRA) assistance.

30-90 days after discharge

Apply for a credit card

The credit card you apply for following a bankruptcy should be used as a tool to re-establish credit, not for everyday spending. Do your best to avoid “secure” or “store” credit cards -— you don’t need them and they can actually hurt your credit report in the long run.

For your first card, you want a real Visa or Mastercard, even if that means you have to pay an annual fee. Once you’ve received your new card, only use 10 percent or less of the balance and pay it in full each month. Use your debit card or cash for everything else.

Note: The offers you get for new credit via mail or email usually have the worst terms. You can usually find better rates by looking at different banks online and having a bit of patience.

Apply for a Loan THAT BUILDS CREDIT

Having the right mix of credit counts more to your score than you realize, so having an installment loan reporting is important.

If you had a mortgage and car loan before your bankruptcy, they will no longer be reporting to your credit (they were discharged unless they were reaffirmed, which is incredibly rare).

6-9 months after discharge

Get a second credit card

Five to six months after the activation of your first credit card, you should apply for another credit card.

To achieve the highest scores, people need five to seven open credit accounts, but you don’t want to apply for them all at the same time. Staggering your accounts five to six months apart limits the number of “inquiries” on your report and shows creditors that you’re not too eager to “get new credit.”

12-13 months after discharge

Check your score again

Request all three reports from the CRAs once you’re at least a year out from your last request and note any changes on the reports.

1 day to 24 months after discharge

Spend within your means

The first two years following a bankruptcy is not the time for big purchases, unnecessary spending or excessive loan inquiries.

Any time following discharge

Ask for help

You can do it on your own, but credit rebuilding can be complicated and might require some professional finesse. Attorneys who handle Fair Credit Reporting Act cases in-house can usually get the best credit-repair results the fastest.

In addition, attorney fees for credit repair are lower than some charged by credit-repair companies, and your attorney’s fees may be refunded by the court if an FCRA lawsuit is required.

Most of all, be wary of anyone charging monthly fees for credit-repair services instead of fixed, flat fees. Monthly fees can incentivize an agency to take a long time rather than getting the job done as quickly as possible.

General credit score ranges

One of the problems with credit scores is that they’re inconsistent.

There are more than 160 different FICO credit scores, which are the scores that most lenders use, and the they range from 300 to 850.

However, in general this is how the scores rank:

Bad: Below 600

Below average: 600-649

Average: 650-699

Good: 700-749

Excellent: 750-plus