How to Rebuild Your Credit After Bankruptcy

Bankruptcy can create tremendous disincentives for creditors and lenders to do business with you. However, a strategically crafted post-bankruptcy financial management strategy may give you at least the beginnings of a sound second financial life.

Bankruptcy can knock your credit score (also known as your FICO score) down into the lowest rankings -- depending on your past credit history and the severity of your bankruptcy, simply filing can bump you down to 400 or below. However, all is not lost -- here are some practical tips for bootstrapping your way back to better credit.

Prior to filing, try to zero out at least one low interest credit card. While your issuer may not allow you to keep this card, if you can retain it, you may be able to use it as a source of potential good credit to regain your rating.

Any marks on your reports that bring up your bankruptcy are generally bad. Contact your creditors to see whether or not they will be willing to remove their zeroed-out balances from your credit report, since wiping the blemishes clean can automatically improve your score. Take out credit cards (you'll likely only be able to qualify for high interest, high annual fee cards) to begin to prove your good behavior to the bureaus.

Just be sure that you have cash allotments in your budget to pay off your new credit cards to avoid running into the same problems which led you to bankruptcy to begin with. Some issuers will require that you put down collateral to qualify, so you need to work with a financial planner to avoid having to give up that collateral down the line.

You may also sign up to be an authorized user of a third-party's credit card to benefit from his or her good credit. Even if you don't make any purchases on that authorized credit card, the bureaus (and thus future creditors) will know that you have been able to maintain a line of credit in good standing and will reward you accordingly.

Finally, don't trust that the bureaus are automatically going to boost your score after you adopt better borrowing behaviors. Check up on your records regularly. You are entitled a free credit report by law from the bureaus once per year, but you may wish to check in more often following bankruptcy to ensure that your smarter borrowing behavior is getting noticed.