As we began discussing in the last post, bankruptcy can do a lot of damage to a person’s credit score and stays on their credit report for up to 10 years. However, the good news is that individuals in Wisconsin and elsewhere can start rebuilding their credit soon after receiving their bankruptcy discharge.

Beginning to rebuild credit is important in order to be able to qualify for a home loan or auto loan sooner in the future.

As a recent advice column from Bankrate.com pointed out, one of the easiest ways to do this is by applying for manageable credit cards and loans. Although one might think that qualifying for any type of credit card or loan would be extremely difficult after filing for bankruptcy, that’s not the case.

There are two types of credit that individuals may qualify for after a bankruptcy discharge: secured and unsecured.

Secured credit means that the creditor or lender requires you to put down money to “secure” the credit or loan amount you are receiving.

For example, if you put down $500 for the lender to hold, the lender will give you a card with a credit limit of $500. Or if the bank were to give you a $1,000 secured loan, it may also require you to put $500 into an account that you could not access until your loan balance is less than $500.

While these options might not sound very appealing, they are a great way to begin building credit and a good payment history.

It is usually possible to qualify for unsecured credit cards and loans after about six to 24 months of good payment history on secured credit.

The “unsecured” options are more traditional credit cards and loans where the lender gives you a credit limit or loan without requiring collateral.

Although they are offered to individuals based on financial strength, earnings potential and credit history, many individuals are offered unsecured credit cards soon after filing for bankruptcy. Part of the reason for this is that lenders know that the vast majority of people only file for bankruptcy once in their lifetimes.

Source: Fox Business, “How Do I Establish Credit After Bankruptcy Discharge?” Justin Harelik, April 22, 2014