How long does it take to rebuild credit after bankruptcy?

Many readers are facing difficult financial times and are forced to file bankruptcy to stop creditor harassment and save some assets, such as their car and home. Numerous debtors are wondering how long it will take them to rebuild their credit history after a bankruptcy. One reader wrote:

With the economy and the loss of my husband's job forced us to go bankrupt and we lost our home. Up until now I had excellent credit with no worries when it came to purchasing anything. I want to know what I could do to regain my credit as I no longer have any credit cards but I do have a car payment that I kept. Will the payments on the car build up any credit for me and how long does it take before it starts to show?


Based on the comment that she no longer has credit cards and lost her home, I am assuming this was a Chapter 7 Bankruptcy, which will stay on her credit history for 10 years. A Chapter 13 remains on one's credit history for 7 years, but the clock doesn't start ticking until the Chapter 13 repayment plan has been completed, so it essentially comes up to the same 10 years, or could be 12 years if one has a five-year repayment plan.The good news is that if you pay any remaining debt, such as the car payment the reader discussed, and pay that on time regularly, you'll see your credit score start to improve in about six months to a year. To help improve your credit score, it's a good idea to get a secured card and pay it in full each month. You will have to deposit cash up to the amount of your credit line and you will have to pay a yearly fee (usually about $30), but it will appear on credit reports just like any card. Showing that you can responsibly use credit will help to improve your credit score.

In about a year or two you will probably be able to apply for non-secured credit cards as your score goes back up. People I've helped rebuild their credit using this method have seen their scores go back to 650 to 680 within about three years. As the negative history (past late payments and written off accounts) starts to drop off completely your score will rebound even more.

Credit scoring looks primarily at the most recent three to five years, so you'll see a decent credit score after three years as long as you show lenders that you can be an on time payer. Be sure to check your credit report annually and correct any errors. After a bankruptcy, you should be certain that all debt that was written off indicates that it was written off due to bankruptcy. Collectors tend to continue reporting debt, even if it was written off, to keep the debt current and on your report longer. Once the credit reporting bureau knows its been written off to bankruptcy, they won't be able to do that. The debt will fall off the report in seven years.

The foreclosure on your home will make it difficult to get another mortgage, but it will drop off your credit history in seven years. If you do decide you want to buy a home before the foreclosure drops off, talk with mortgage brokers before you even start to look for a home. A good mortgage broker can help you find a deal that will work for you probably three to four years after the foreclosure as long as you've paid any remaining debt on time, but do expect to pay much higher interest rates than the ones you've been seeing in the newspapers.

Lita Epstein has written more than 25 books including the Complete Idiot's Guide to Improving Your Credit Score" and "Surviving a Layoff: A Week by Week Guide to Getting Your Life Back Together."

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