Steps to re Building your Credit after a Bankruptcy

After filing bankruptcy, most people are in a hurry to rebuild their credit as fast as possible.  While it is necessary to rebuild your credit, you also need to exercise caution so that you do not get yourself right back into the same situation that put you into bankruptcy in the first place.  

The first step to rebuilding your credit is to make sure that you have a cushion of savings.  While this may not seem like a true step in rebuilding your credit, it truly is the most important step and there are some very important reasons for this.  When you have savings to cover any debt that you incur, you can continue to rebuild your credit even if you have a job loss or other problems in the future. 

It is also a good idea to get yourself a secured credit card.  Keep in mind that there are some banks that will not allow you to get even a secured credit card until at least 6 months after your bankruptcy is finalized, but you can use that six months to build up your savings, so that it will not be wasted time.  Make sure that when you charge anything, you pay the balance off in full each month.  This means that you should not buy anything with your card that you do not have the cash to pay for.

Car loans are a slightly different story.  While a car loan is a good idea to build up your credit rating, you have to pay at least half the cost of the car as a down payment if you do not want to be upside down on the car.  The other issue is that car payments can get expensive, and insurance is also more expensive when you have a loan on your car.  If you really want to build up your credit quickly however, a car loan will help.  It may also be necessary if you are planning to finance a home later on.  Often, the best way to handle this is to buy a car with as small a loan as possible about a year before you are ready to qualify for a home, and make your payments faithfully for that year.  When you have qualified for your home, get the car paid off as quickly as possible so that you no longer have that payment.

Until you have been done with your bankruptcy for some time, getting a home loan may be difficult.  You will have to take your time and raise your credit score enough to get a home loan.  You may also expect to have to come up with at least a 20% down payment.  Once you have rebuilt your credit sufficiently to get a home loan, and have bought your home, the best thing to do at this point would be to get your home loan paid off, pay off everything else, and actually never have to worry about using credit for anything else, as rebuilding your credit is important to buying a home, but you are best off if you have no debt at all, even if that means a lower credit score.