So you have filed for bankruptcy, you have received your discharge from the Bankruptcy Court and now you walk away from thousands of dollars in debt. You sigh with relief....the whole world looks brighter....you feel more confident and you can sleep at night. But...now what? Your credit score is low and even though you intend to pay all debt you incur in the future, how do you make creditors believe this? The answer is that there is no quick, easy fix. Over the next months and years, you will have to prove that you are a good credit risk. You may hear the word "No." a lot. Don't worry - there are a lot of lenders who are willing to take a small risk for a price. The price you pay will be in higher interest rates.
But how?! At first, you will probably have to pay for a lot of things using cash. You are free to open a bank account and you should make every effort to pay for things like rent/mortgage, car payments, utilities and phone bills on time. Credit card companies are unlikely to give you cards with high balances and good interest rates at first. You may have to settle for a card with a $400 limit and a 25% interest rate. Make a few small purchases using your new cards and pay them off in full immediately. After 6 months of this, ask your card company for an interest rate reduction and/or a credit limit increase. These are the baby steps it takes to reestablish a good credit history.
Be sure to save as much as you can each month even if it is only a few dollars. This will add up over time and will be there for times when you need money for car repairs or unexpected medical bills but don't have the credit to charge them. Ask about payment plans. Usually plans aren't offered up front, but many places will accept them. Be sure to make each payment on time and in full. Pay off the balance early if you can. For some purchases, you may need a co-signer. If you don't have anyone willing or able to do this, you will thank yourself later if you have been saving each month.
There are some lenders to stay away from as a general rule: pay day and title loan companies. Unless you are 110% positive that you will be able to pay them off on time, do not sign anything. An extra hundred dollars this week isn't worth all the walking you will be doing after they take possession of your car.
The whole purpose is to create a clean paper trail that future lenders can look at when deciding whether or not to loan money to you when you need that new car or you decide to purchase a home. Be sure to stay within your means when you establish this paper trail. When using your new credit card, charging as little as 20 dollars a month that you then promptly repay gets you back on the credit grid and is a small step towards greater financial freedom later on.
