If you’re thinking of filing bankruptcy and if it’s an unavoidable option know that you must begin establishing new credit as soon as the bankruptcy is discharged. When I work with people that have had a bankruptcy, both Chapter 7 and 13 the first thing I have to look for is established credit after the BK.

Rule of thumb for both Conventional and FHA financing, a bankruptcy must have not been filed within 48 months. Bankruptcies that occur within 2 years will disqualify a borrower for financing.  If the discharge happened more than 2 years ago then you must be able to show new credit with payment history proving that you’ve learned from the past, recovered from any unfortunate life situations, and that you are now able to manage your finances.

Method to establish new credit

As you know or will soon come to find out is that credit card companies and/or other creditors will not extend credit if you currently have bad credit (Usually below 620 FICO). For this reason a Secured Credit Card will be the solution. A Secured Credit Card is a pre-paid credit card that uses your own money to establish your credit limit. For instance, if you deposit $500 into your Secured Card then your total spending limit is $500. These types of credit cards report to the three major bureaus on a monthly basis, therefore; establishing a payment history. Once you’ve had this card long enough you will have developed confidence in other creditors and when that happens you can start expecting offers from other regular credit card companies.

My recommendation

I recommend applying for a Secured Credit Card from a local recognized Federal Credit Union. Compare at least three Secured Cards to make sure you’re getting the best deal.

Ask the following questions:

1. Does the creditor report to the three major bureaus on a monthly basis?
2. What are the fees? Are the fees monthly or annually?
3. What is the interest rate?

I hope this information has been helpful in your “after bankruptcy” planning. Before I end this I also would like to mention that establishing bad credit is very bad. Not having any newly established credit is better than having negative items on your credit report after the BK, but both should be avoided. To summarize, establish new credit and protect it by not being late on any payments.