Bounce back fast after bankruptcy... Here are some tips on how from Author Lis Weston:

Carefully rebuild your credit, and you could qualify for almost normal rates, even a
mortgage, in just a few years. Hereʹs what you need to do. By Liz Pulliam Weston

Almost anyone can get credit soon after a bankruptcy. Itʹs just a matter of
knowing how.

Itʹs true that bankruptcy deals a devastating blow to your credit and your credit
score, the three‐digit number lenders use to gauge your creditworthiness. But the
effects donʹt have to be lasting. Long before the bankruptcy drops off your credit report, you could be qualifying for loans with good rates and terms. Nothing is forever
Ken from Chicago filed Chapter 7 liquidation after unemployment and overspending caused him to rack up more than $20,000 in credit card and other unsecured debt. Four years later, his credit scores ranged from 655 to 719, decent numbers that are just below the cutoff to get most lendersʹ very best rates. I . . . applied for a secured credit card (usually reserved for people with troubled credit) and was informed that I qualified for an unsecured card ‐‐ a possibility I hadnʹt even considered,ʺ Ken said. ʺWhile I am going to be very careful with my new credit (card), I am heartened that creditors consider me an acceptable risk.ʺIf youʹre recently bankrupted, here are two things you need to keep in mind:

• Nothing in credit is ʺforever.ʺ A bankruptcy legally can remain on your credit report for up to 10 years, but its effect on your credit score can start to
diminish the day your case is closed ‐‐ if you adopt responsible credit habits
such as paying your bills on time, using only a small portion of your
available credit and not applying for too much credit at once.
• You have to get and use credit to build your credit score. Living on a cashonly
basis may be a smart choice for those who really canʹt handle credit.
But if you want to rebuild your credit score, you canʹt sit on the sidelines.
Learn from your mistakes
Although repeat bankrupts show that getting credit after a Chapter 7 or 13 filing
is possible, you shouldnʹt want to emulate those who file more than once.

At first glance, people who file more than one bankruptcy seem to be beating the
system: They run up big bills and then walk away.
Think about it a little more, though, and youʹll see these multiple bankrupts are
really defeating themselves. Their debts and credit history often mean theyʹre
paying out big bucks in high interest payments during the time when theyʹre
prohibited from filing another bankruptcy. (The 2005 bankruptcy law provides
that, under Chapter 7, eight years must elapse before you can refile. If you go for
Chapter 13 after a Chapter 7, you must wait four years. Going from one Chapter
13 to another, two years must elapse.)

And most people canʹt file for Chapter 7 liquidation if they have significant assets
to protect, such as home equity or savings. So these folks who are repeatedly
going broke often have little to show for all the money thatʹs leaving their
pockets. Instead of building wealth over time, theyʹre losing ground.
Instead, use your bankruptcy as a wake‐up call to figure out whatʹs wrong with
your finances and fix it.
• If your problem was overspending, youʹll find plenty of information on this
site about creating and sticking to a budget (see ʺYour 5 minute guide to
budgetingʺ).
• If you didnʹt have enough savings to survive a job loss or other setback, get
serious about establishing an emergency fund.
• If you were sunk by medical bills, seek a job with insurance coverage or
check to see if your state offers coverage.

Clean up your credit report
One common problem people emerging from bankruptcy often face is that credit
reports frequently show accounts as open and overdue ‐‐ when in fact they were
closed and the obligations wiped out as part of the bankruptcy.
If you encounter this, you need to contact the credit bureaus and insist that those
accounts be properly reported as ʺincluded in bankruptcy.ʺ Itʹs the only way
your credit can recover.
If you have other serious mistakes on your credit report, those need to be
corrected as well. Your credit score is based on information in your credit report,
so errors on your report can seriously dampen your score.

Get a secured credit card
You need two types of credit to quickly rebuild your credit score:
• Installment: auto loans, student loans or mortgages
• Revolving: credit cards or home equity lines of credit
Most recent bankrupts have trouble qualifying for a regular, unsecured credit
card. So the best solution usually is a secured card, which generally gives you a
credit limit thatʹs equal to an amount you deposit at the issuing bank.
Typically, thatʹs $200 to $500, which may seem like a pittance compared with the
credit limits you enjoyed before your bankruptcy. But donʹt make the mistake of
using your available credit. Maxing out your credit cards hurts your credit score.
You donʹt want to charge more than 30% or so of your credit limit, and you want
to pay the balance off in full each month. Light, regular use of a credit card is
what helps build your credit.
And contrary to what you might have heard, you typically donʹt need to carry a
balance or pay credit card interest to build your score, since the leading credit
scoring formula doesnʹt distinguish between balances that are paid off and
balances that are carried month to month. Get in the habit now of not charging
more than you can pay off every month; your credit score and your finances will
be the better for it.
You also shouldnʹt grab just any secured card. Look for the following:
• No application fee and reasonable annual fee. Some secured cards tack huge
upfront and annual charges onto their accounts; you donʹt need to pay these
to build your credit.
• Reports to the major credit bureaus. Youʹre not doing your credit score any
good unless your payment history is being reported to the three major
bureaus: Equifax, Experian and TransUnion. Before you apply for a card,
call and ask if the issuer regularly reports to all three.
• Converts to an unsecured card after 12‐18 months of on‐time payments.
Good behavior should get you upgraded to a regular credit card within a
year or two.

Get an installment loan
If you still have student loans (which typically arenʹt dischargeable in
bankruptcy), you can use them to rebuild your score. Make your payments on
time, all the time, and try to pay more than you owe whenever possible. Next to
making on‐time payments, paying down your existing debt is one of the best
ways to improve your credit score.
Ken of Chicago took this to heart, making double or triple the minimum
payments required to retire his $23,500 student loan debt within three years of
his bankruptcy filing.
ʺThe fact that I had to repay my student loans (rather than having them
discharged) might have helped me in the long run,ʺ he said.
Itʹs unlikely in the current credit climate, but you may be able to qualify for a
high‐rate mortgage as little as six months after a bankruptcy. Youʹre probably
better off waiting until you can qualify for an FHA loan, though. You can
typically get one just two years after your bankruptcy case has closed, as long as
youʹve maintained good credit habits since then. FHA loans have interest rates
that are usually only half a percentage point higher than regular mortgage rates.
Just make sure you really can afford a home before you buy one. Many people
wind up in bankruptcy court because they stretched too far to buy a house and
canʹt keep up with all the attendant costs of homeownership, said bankruptcy
expert Elizabeth Warren of Harvard University. (See ʺDonʹt bite off too much
houseʺ for more details.)

Auto loans can also help you rebuild your credit ‐‐ just be prepared to pay nosebleeding
rates at first. ʺMy first vehicle out of bankruptcy (had an interest rate of) 21%,ʺ said Chance
Nelson of Indianapolis, who applied for the loan just a few months after his
debts were discharged. ʺAfter paying this for about two years, I went and traded
it in and purchased another (at) 13.99%.ʺ
Nelson refinanced this second loan a year later at 7.95%. Five years after his
bankruptcy filing, Nelson was paying a reasonable 6% rate for his auto loan.
If you go this route, try to make a big down payment and choose a loan that
doesnʹt have a prepayment penalty. That way, you can refinance the car to a
lower interest rate as your credit improves.
Liz Pulliam Weston is a personal finance columnist for MSN Money
(http://money.msn.com), where this article first appeared. For more, visit
AskLizWeston.com.