If you've recently had your debt discharged through a Chapter 7 bankruptcy, you may be afraid to even look at your credit score or report. However, denial may not be much help in this situation -- although your credit score will gradually begin to improve as time passes, without taking action to improve your credit, you could find yourself struggling to obtain financing for years to come. Achieving good or great credit takes effort. Read on to learn more about how you can improve your creditworthiness in the eyes of lenders more quickly.
Keep paying your bills
If you reaffirmed any of your debt (like a mortgage or auto loans) before declaring bankruptcy, it's important to keep paying these bills on schedule. Doing so will allow your creditors to make positive reports to the three major credit reporting bureaus. Although these positive reports don't outweigh the bankruptcy by themselves, they can help keep your credit score climbing.
Look into a secured or pre-paid credit card
Those whose bankruptcy was primarily due to an overspending problem may be reluctant to get (or use) a credit card. However, secured and pre-paid cards can help you raise your credit score without the risk of spending beyond your means. These cards differ from other types of credit cards in that the credit limit is based on the amount of money you've deposited with the company. For example, if you take out a secured card with a $500 limit, you'll need to pay $500 to the credit card company first. In some cases, the credit card company may even pay you a low monthly interest rate on these funds.
Take out an installment loan
Once your credit has improved enough for you to qualify for low-dollar loans, you may want to consider taking out a small installment loan for a vehicle purchase, home improvements, or even to go back to school. Because the status of these loans are regularly reported to credit bureaus, prompt payment on installment loans can help you raise your credit score significantly within a fairly short period of time. As your score rises, you'll qualify for more favorable interest rates and may even be able to refinance your installment loan to lower the amount of interest you're paying.
Monitor your credit reports
It's important to be aware of the contents of your credit report -- if not your credit score -- on a regular basis, particularly after bankruptcy. Occasionally, a lender will mistakenly fail to report a discharged debt as "closed" and your credit report may indicate you're still responsible for this debt. By knowing exactly what's included in your credit report, you'll have full control of your financial destiny.