Ask Kim
Rebuild Your Credit
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
May 15, 2002
You're on the right track: Lenders usually count good management of credit card debt more than other loans when you're re-establishing credit. The best way to build your credit again is to get a credit card, charge small purchases and pay them off every month.
It's surprisingly easy to get a credit card after declaring bankruptcy -- but you'll generally pay a premium for the privilege. Quite a few lenders shower people credit cards after bankruptcy because they know you can't declare chapter 7 bankruptcy again for at least another six years, and they realize that many people who have been bankrupt are happy just to qualify for any card. But many of these cards have high fees, high interest rates and can quickly get you into trouble again.
Some cards are are much better than others, though. And many of the strategies used to pick your first credit card apply to finding the right card after bankruptcy. For example, if you can't qualify for a traditional credit card, consider a secured card, which requires a deposit as collateral. Department store cards are also an option.
But be careful not to apply for too many cards at the same time. That will turn creditors off in a hurry.
You can also improve your credit record by cleaning up your credit report. The chapter 7 bankruptcy will appear on your report for up to ten years, but you might be able to improve your credit picture in other areas. Get a copy of your credit report from the major credit bureaus and make sure that creditors have updated their information so it doesn't look like you still owe money on accounts that were wiped out in bankruptcy. You can add up to a 100-word explanation if you think that will help. Also, make sure that lenders you've been paying regularly report that information to the credit bureau.