Tips for repairing credit after a bankruptcy

Bankruptcy has become a reality for a large number of Georgia residents, largely due to high unemployment rates, falling home values, and consumers who are spending more than they can afford in their new financial reality. Although bankruptcy can damage a filer’s credit score, financial experts say that even those who experience extreme fiscal challenges can rebuild their score over time.

In the months following a bankruptcy, consumers should carefully monitor their credit reports and credit scores (free credit reports are available through the three major credit reporting agencies). Filing for bankruptcy can cause a credit score reduction of up to 200 points, some of which can be quickly and easily made up by finding and correcting credit report errors. The reporting agencies have a duty to respond to any communication consumers send them and correct any errors they make, although it may take some time for that correction to be reflected on a credit report.

According to financial experts, 35 percent of your credit score comes from your payment history, which includes bankruptcies. Another 30 percent reflects the comparison of your available and used credit, and 15 percent is determined by the length of your credit history. Of the final 20 percent, half comes from your credit inquiries and half comes from your mix of credit sources, such as mortgages or credit cards.

Experts say that bankruptcy filers should immediately correct any negative habits that may have contributed to the initial bankruptcy filing. Making timely payments on mortgages, utilities and cars can build your credit quickly. In addition, experts advise that filers obtain new secured credit cards, since having credit and paying it off on time is another positive indicator.

Source: Redlands Daily Facts, “Damage control: Consumers can rebuild credit after bankruptcy”, Kevin Smith and Rebecca U. Cho, 3 April 2011