Dear Liz: I filed for bankruptcy this year. There was no way to avoid it. What do I do to start reestablishing credit and raising my credit score? How long does it take for life to get back to normal so that I can go to a regular car dealership to buy a vehicle instead of using some seedy automobile dealership with 22% rates?
Answer: It can take five years after a bankruptcy for your FICO credit scores to return to the 680 range, which is about where auto loan interest rates start to get more reasonable. People with FICOs in the 660 to 690 range got interest rates averaging about 7.5%, according to the MyFico.com site, compared with 11% and up for those with lower scores. It can take seven or more years to boost your scores above 720, which is where the truly low rates (4% and below) can be had.
To rehabilitate your scores as quickly as possible, first review your credit reports at http://www.annualcreditreport.com to make sure all the debts that were included in bankruptcy are listed that way. If you have any open credit card accounts, use them lightly but regularly and pay them off in full every month. “Lightly” means using less than 30% of your credit limits. If you don’t have a card, consider applying for a secured card, which gives you a credit limit equal to an amount you deposit with the issuing bank, typically $200 to $1,000. You can find secured card offers at several websites, including LowCards.com, CreditCards.com, CardRatings.com and NerdWallet.com.
After a year or so, consider adding an installment loan such as a personal loan or an auto loan to your credit mix. A credit union may give you a more reasonable rate than a traditional bank. Paying off that loan should help boost your scores.
Don’t close accounts or apply for a bunch of new accounts. Pay all your bills on time and don’t let disputes or medical bills wind up in collections.
There aren’t any quick fixes, so don’t waste your money on credit repair firms or other pitches that promise instant results. What will repair your score is using credit responsibly over time.