How do I rebuild credit after bankruptcy?

After your Arizona bankruptcy is discharged, your credit score will be reset. Living on a cash-only basis is necessary for some time. But, eventually you will want to rebuild credit to qualify for better loan rates for major purchases such as a car or home. To do that, you will need to rebuild credit worthiness.

Credit repair fraud schemes and payday loans often cause more harm to your credit score in the long run. Avoid them at all costs by managing your budget and living within your means. Rebuilding credit is a process that takes time and there is no shortcut.

Step 1: establish a checking account and a savings account at a local bank. Use these accounts to pay all of your remaining bills (rent, utilities, etc.) on time every month and do not miss a payment. Avoiding late payments is crucial to successfully reestablishing credit.

Step 2: apply for new credit after your bankruptcy discharge. Moderate the amount of credit as well as the period between applications. A modest amount of credit will not risk a return to overwhelming debt if you manage it carefully. And your credit report will not look overly active if you spread out the time between applications.

  • Apply for a credit card from the bank where you have established checking and savings accounts. They may be more flexible to in-house customers.
  • Use your credit card regularly up to about 1/3 of the available credit. Pay the balance off in full each month; there is no advantage to carrying over a balance from month to month.
  • Get an installment loan, such as an auto loan, even though you will pay a higher interest rate. Buy a used vehicle to avoid the steep depreciation of a new car during the critical first few years before you can refinance to a better rate.

Step 3: regularly check your credit report to make sure that discharged accounts are shown as “closed” or “discharged in bankruptcy.” It will be more difficult to rebuild and improve your credit standing if the old accounts still show as “open” or “delinquent.”

By following these steps you should be able to rebuild credit within just a year or two of your bankruptcy in Arizona.