Liz Weston

Dear Liz: How do you repair credit scores after filing for bankruptcy? My husband and I are in this situation and are looking to reestablish credit and increase our credit scores. Also, how long do closed accounts appear on the credit report?

Answer: Filing for bankruptcy may have actually helped your scores. Researchers at the Federal Reserve Bank of Philadelphia found scores typically plunged in the 18 months before people filed for bankruptcy and rose steadily afterward. The average credit score before someone filed Chapter 7 was 538.2 on Equifax’s 280-to-850 scoring range. By the time filers’ cases were discharged, their average score was 620.3.

You can continue the upward trend with a credit-builder loan. These loans, typically offered by credit unions, put the money you borrow — usually $500 to $1,000 — into a certificate of deposit or savings account that you can claim once you’ve made 12 monthly payments. Your payments are reported to the credit bureaus, so you can build a decent credit history and your savings at the same time. If your local credit union doesn’t offer these loans, check to see if there’s a community development financial institution near you that does. You can find links to these at www.cdfifund.gov. Another option is Self Lender, an online company that makes credit-builder loans.

If you don’t already have a credit card, you can accelerate your scores’ rehabilitation with a secured credit card. You make a deposit, typically $200 to $2,000, with the issuing bank and get a credit line equal to that deposit. You should use the card lightly but regularly, being careful not to charge more than about 30% of its credit limit and paying the balance in full each month.

Another option is to wait until your scores are in the mid-600s and then apply for a regular credit card.

The bankruptcy will remain on your credit report for 10 years, but it will have less effect on your scores as time goes by as long as you continue to use credit responsibly.