Re-establishing Credit After Bankruptcy

In order to re-establish your credit, you need to understand what comprises your credit score. Your credit score is broken down into five categories. Each is weighted with a certain percentage of the total.

Your Payment History carries the most weight with 35% of the total score. When rebuilding your credit, the best place to start is by making all of your payments on time. Making on time payments actually increases your score whereas late payments and bankruptcies lower the score.

How Much You Owe is the next weightiest part of the score with 30% of the total. This is comprised of how much credit you have available to you and how much you have used. This one is tricky. You can actually decrease your score if you are maxed out on available credit, even if you are making on time payments. If at all possible, never use more than 50% of available credit and pay off balanced each month. Creditors want to know you can use credit responsibly.

Length of Credit History holds 15% of the total value of your credit rating. The length of time you have an account in good standing can increase your score. However, if you manage your credit wisely, you can have a good score with a short credit history.

Credit Mix accounts for 10% of the overall rating. It is important to have a mix of different kinds of credit accounts like a mortgage or loan a revolving credit like a credit card.

And finally, New Credit also has a low weight with 10% of the total score. Applying for new credit can bring down your score. Before you apply for a credit card, car loan or mortgage, shop rate before you allow anyone to pull a credit report. Try to keep the amount of time your credit is pulled to a minimum. While the score may only drop 2-5 point, these can be valuable points when you are re-establishing a good credit rating.

After a bankruptcy, it is common for high interest rate credit card services to contact you. Beware of taking their offer. It is better to get a secured credit card with a national bank like US Bank or Wells Fargo. Your credit limit is based on a dollar amount that is secured by a savings account. You can increase your credit limit by depositing more money into the savings account. Treat it as a regular credit card, do not use more than 50% of your available balance and try to pay off the balance each month. Think of using it for items that you might otherwise pay cash for like gas and groceries. Set a budget for these items and set the money aside to pay the bill at the end of the month. After six months to a year, your deposit will be applied to your balance and the card will convert to a regular unsecured credit card.

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