Credit After Bankruptcy

Many people have the misconception that they will no longer be able to use credit after their bankruptcy. This could not be further from the truth. In all actuality, if you wait until the bankruptcy has come off of your credit report (up to 10 years after the discharge) your credit is worse than it was the first day after you filed. The reason is that after 10 years you suddenly have NO credit – it’s like being 18 and just out on your own. No credit can be worse than bad credit.

There are many things to consider when considering credit after bankruptcy though. First and foremost, you don’t want to get over extended and get more credit than you can comfortably afford. Secondly, what type of credit do you want to get (i.e. credit cards, car loan, home loan). And finally, where do you go to get the credit you are looking for.

Let’s work backwards – where to go – initially, you won’t have to go much past your mail box. Many credit card companies and car dealerships purchase lists of people who have filed bankruptcy and send offers. It is vital that new filers read the fine print on these offers!!! Many will have extra fees and charges to open the line of credit, on credit cards. On car loans, many lenders will extend credit to those who have recently filed, but they have an extremely high interest rate – 18% or higher.

There are two main ways to reestablish your credit after filing. Credit cards and loans, secured and unsecured, banks and credit unions – the options go on and on and there are pros and cons to each option.

Credit Cards. Credit cards can be secured or unsecured. A secured credit card requires you to first start a savings account with the bank that will provide the card. The amount of money in your savings account generally dictates how much your credit limit will be. These cards are relatively easy to get since your own money is securing the payment. In addition, many times the interest rate can be lower than with an unsecured card.

Loans. Loans, much like credit cards can be secured or unsecured. Typically, it is difficult to be approved for an unsecured loan without having excellent credit. You can get a secured loan such as for the purchase of a newer car. These are generally not terribly difficult to get approved for, but the interest can be a killer. One way to remedy this may be to get the loan at a higher interest rate initially. Pay on the loan for a year, ON TIME and AS SCHEDULED, then refinance ONLY THE BALANCE of the loan at a lower interest rate. Something to remember with any secured loan – if you make just 1 extra payment equal to your normal monthly payment each year you can shave years and interest off of the loan. It’s a great investment for your tax refund.

Credit Cards vs. Loans

Credit CardsLoans
Open line of credit – you can use this money over and over as you pay off the debtSince they are usually closed lines, you can get them paid off quicker than credit cards
Usually higher interest rateHarder to over-extend yourself
Usually lower monthly payments but it takes longer to pay offEasier to re-organize if you get behind on payments since you have a personal repertoire with the lender


  • If you apply for credit and get turned down, don’t get discouraged. Now is the time to ask why and review your credit report.
  • Do not try to get credit more than 4 times within 6 months. Many lenders will look at how many other lenders have reviewed your credit report and not extended credit. It’s a red flag to potential lenders that someone else didn’t want to give you credit.
  • Don’t start until you can REALISTICALLY afford to.
  • Generally cars can be bought almost immediately after a discharge, houses about 2 years afterward.
  • PROCEED WITH CAUTION!!!!! Once you reestablish, it’s easy to over extend, creditors follow your accepted offers and send their own.
  • If you wait three or more years to reestablish, it gets harder to find lenders willing to extend credit.

Don’t pay processing fees BEFORE you are approved. Many offers will have hidden fees for processing and such – CAUTION IS THE KEY!

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