How to Improve Credit After Bankruptcy

Reader Question: We filed bankruptcy, it has been discharged, now we want to buy a house. But our credit scores are low. We don't owe anybody. How can we improve our credit scores?

It sounds like you filed a Chapter 13 bankruptcy, which includes debt repayment. That type of filing can stay on your credit report for up to 10 years, but it has to come off after that. The Fair Credit Reporting Act limits how long negative items (like a bankruptcy filing) can stay on your credit. While the limit is ten years, the credit reporting agencies typically remove Chapter 13 filings after seven years.

Here's a quote from Maxine Sweet, one of the VPs at the Experian credit reporting company:

Bankruptcy can be reported for up to 10 years from the filing date ... Experian reports Chapter 13 bankruptcy for seven years because it includes partial debt repayment. Chapter 7 bankruptcy remains for 10 years from the filing date because none of the debt is repaid.

With that being said, you can still improve your credit score after a bankruptcy filing, even while it remains on your report. Additionally, the filing will have less of an impact on your score over time (up until it's removed completely).

Here's a Q&A session from October you might want to peruse:
How to Repair Credit After Bankruptcy

So while you cannot remove the bankruptcy filing from your credit report, you can do plenty to rebuild your score over time. I would focus on the following:

Make sure you continue to pay all of your bills on time. As you can see from this credit scoring chart, your payment history accounts for 35% of your overall score -- more than any other single item.
Work out a budget that allows you to pay down your credit card balances over time. By reducing your balances, you are decreasing your "credit utilization ratio." This is another factor that has a big impact on your overall score.

These two things will improve your credit score more than anything else. So they are worth the effort. Also, if it's been a while since you last checked your credit reports for errors, duplicates and other inaccuracies, you might consider doing that as well.

Related articles:

• How to Raise Your Credit Score Fast in 2009
• Rebuilding Credit After a Bankruptcy Filing (excellent article)
  

I hope that helps you out some. Good luck, and happy holidays.