Okay the BK is discharged. Now let's start rebuilding your credit score. This not a quick fix. It also assumes you have effectively dealt with whatever caused you declare bankruptcy whether it be situation, lifestyle, or lack of financial capabilities.

This strategy is front-loaded with a long term payoff because of the BK credit restoration timeline. A BK can be on your credit report for up to 10 years. The good news is that its impact lessens on your credit report the further removed it is from the present. You may be eligible for a mortgage or auto loan in much less time if your other factors are strong.

​Here are the six steps to rebuild a perfect credit score:
1.Be wary of credit repair companies. 

• They can't do anything you couldn't do for yourself at little or no costs. The information to DIY is freely available from credible non-commercial education sites or non-profit counseling agencies.

2. Start now. Be patient.

• The length of your credit history impacts about 15% of your score. All accounts included in your BK will no longer impact and eventually disappear from your credit report in 7 years or less. After BK stops reporting you will have 7-10 years of pristine credit accounts. At that point, only active accounts will be reporting.

3. Become an authorized user
4. Check your credit reports 90 days after BK and then at least annually thereafter. 

• Fix everything that is wrong on your report.

5. Use financial services products that build credit.

• Get a secured credit card quickly, if it's your only option. All types of credit cards, secured, unsecured, gasoline, store, etc are revolving accounts. Also, these are generally low limit cards. 
• This category makes up 30% of your credit score. Therefore you must optimize this credit scoring factor if you are going to have a future score above 750.
• CUR or your credit utilization ratio is what impacts your credit score the most. Pragmatically, this not much of a factor so soon after a BK. Its impact on an already bad credit score isn't the only factor that will stop you from getting a loan at this point. 
  • A credit utilization ratio of 10% or less will be your goal. However, achieving that can be difficult with low limit credit cards. A $500 limit secured credit card would only yield $50 credit usage.
  • What is more important than your CUR at this point in your rebuilding journey is that you develop the habit of paying your credit card statement balance in full every month by the due date. You should focus on building a solid revolving credit payment history without CUR concerns at this point.
• Get an unsecured card ASAP. If you do well with your secure card, you will start to get offers for unsecured cards. The terms on these credit cards are often not pretty but they are unsecured. Once you get one of these, you no longer no need a secured card. You will be able to get your security deposit back.
  • Be careful closing this account too fast. Unknowingly doing so can set your credit score improvement efforts back significantly by devaluing your length of credit and payment history. After you obtain your second or third unsecured card you can probably close the secured card with negligible future impact
  • Pay close attention to the CUR on this card and all other revolving accounts. Pay the statement balance in full by the due date each month.
• Get a share loan from a credit union or bank. In the worst-case scenario but guaranteed approval scenario, you will need money to do this, just as you do for a secured card. In essence, you go borrow an amount of money equal to or less than you have on deposit with the financial institution. They will use your funds as collateral. Then repay the loan over the full term to generate maximum payment history. Do it again at the end of the first loan, if necessary.
  • Installment loans payments impact your credit score the same regardless of the amount. Here’s one case when size doesn’t really matter. Payment history and account type do.

6. Create Credit Diversity

Credit diversity or “types of accounts,” in credit report speak, is a minor factor that determines about 10% of your credit score in most scoring models.
It measures how you have handled different types of credit accounts, currently and over time. Since it is measured by the scoring models, it also can be managed or influenced by you. Like most things related to credit scores, it is best accomplished over time and with a strategy.

There are three types of accounts credit scoring algorithms consider:

• Revolving minimum payment required monthly
  • Credit Cards
    • Secured
    • Unsecured
  • HELOC (Home Equity Line of Credit)
• Open orService Credit must be paid in full every month
  • like the old school AMEX cards
  • May only report under expanded scoring models such as UltraFICO
    • Utilities
    • Cell phones
    • Cable/Satellite
• Installment fixed term of payments until payoff
  • Student Loans
  • Auto Loans
  • Mortgages
  • Appliances, electronics, furniture
  • Credit Builder Loans

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What Is NOT Part of Credit Mix?

• Three of the most common types of financial services products that don't count toward credit mix are rent-to-own (RTO), payday loans, and title loans. Lenders who provide RTO, payday and title loans don't report them to credit bureaus, so they won't impact your credit scores or show up on your credit report. Even when you repay on time every month, it won't factor into your credit report.

​

• HOWEVER, if you default, your account will be sold to a collection agency, which will then report it on your credit. In other words, RTO, payday, and title loans can't help your credit, but they can absolutely hurt it.

​​Best practices to optimize credit diversity

• Become an authorized user.
• Make someone an authorized user. 
• As you “live long and prosper,” mindfully maintain a diverse credit mix as you engage the economy over time.
• BK recovery strategy

Inquiries are required by law to be on your credit report for 2 years. 
Inquiries are only about 10% of your credit score. 
Because it can impact your credit score you still need to manage it to optimize your score. Especially if you are now or will be actively looking for credit in the near future.
Types of inquiries are described by the industry jargon of "hard" and "soft."
Soft inquiry

• These inquiries will show up on your credit reports for six months. 
• They are not displayed to lenders who pull your credit reports. 
• They are NOT counted as a part of any credit scoring models.
• A lender has purchased your name from the credit bureaus for the purposes of sending you some sort of credit solicitation in the mail.
• A lender with whom you already have credit reviews your credit report.
• One of your credit card companies wants to re-issue your credit card before the expiration date.
• You have asked for a copy of your own credit reports, either directly from the credit bureaus or through one of the various online services that resell credit reports.

Hard inquiry

• You gave permission to check your credit report and score.
  • Creditors, Insurance co, employers, etc.
• Recent hard inquiries are considered a risk factor in credit scoring models
• Can impact your score for one year
• Hard inquiries can only happen when you apply for credit such as:
  • Apply for a car loan
  • Apply for a student loan
  • Prequalify or apply for a mortgage or other home-related loans such as a home equity loan
  • Fill out and return any of the many “pre-approved” offers of credit that you get in the mail
  • Take advantage of “instant credit” offers when you are at the shopping malls
  • Apply for a store credit card from an electronics retailer
  • Apply for credit from any lender using the internet
• You may be able to "bundle" your inquiries when you rate shop. The scoring models recognize the prudent practice of searching for the best rates. Therefore they count multiple inquiries of the same type as one inquiry. It's called “Inquiry De-duplication.” 
  • Time periods to rate shop vary from 14 to 45 days depending on the scoring model.
  • Must all be the same creditor category such as banks, credit unions, mortgage companies, student loans, auto finance, insurance companies, etc.
    • Can be tricky for the consumer to know exactly how the lender is categorized at a credit bureau.
• Each revolving charge inquiry is treated as a hard inquiry regardless of timing.

Best practices for credit report inquiries:

• Only apply for credit strategically.
• Resist in-store and online offers for additional savings, if you apply for a branded credit card.
  • Generally, if approved, the low limit, hard inquiry, and possible destruction of your CUR (credit utilization ratio) are not worth it.
  • However, major purchases such as appliances, electronics, and furniture may be exceptions, if the terms are truly beneficial. (No interest for a year, 90 days same as cash, etc.)
• Challenge hard inquiries at the credit bureau.  You can remove a hard inquiry if:​
  • The inquiry occurred without your knowledge.
  • The inquiry occurred without your approval.
  • The number of inquiries exceeded what you expected.
  • You felt pressured into approving the hard inquiry.

The proportion of balance to limits on revolving charges

While your payment history is the most heavily weighted element in credit scoring models, how you use and pay your credit cards accounts comes in a close second.  The proportion of your credit limit you have already accessed-regardless of payment history-affects your score in most scoring models. Here are some key takeaways:

30% of your credit score is determined by “Proportion of Balance to Limits on Revolving Accounts.” It shows how you use and pay credit cards and other types of revolving debts.

Below is a formal definition. For me, a revolving account is one where you can access credit to the pre-established limit without further approvals from the creditor. Your monthly payment can be as low as an agreed-upon minimum to the full amount owed. Credit cards, home equity lines of credit (HELOC) and personal lines of credit are all examples of revolving debt.

• Definition: Revolving debt consists of open-ended accounts, usually with variable interest rates, predetermined credit limits, and payments that are calculated as a percentage of the unpaid balance. ~Lending Tree

​
Fact: The less of your available credit you use, the better it is for your credit score.

• 25% or less for a good score
• 10% or less for a great score

The proportion of balance to limit is called your Credit Utilization Ratio (CUR). Your credit utilization ratio is calculated by BOTH individual tradelines and in the aggregate. Here are some CUR considerations:

• Lowering or raising your credit utilization ratio (CUR) is the fastest way to affect your credit score. This can happen in 30 days or even “instantly” in the case of a rapid rescore in the mortgage approval process.

 

• The good news is that how you use your available credit is totally within your control.

 

• An informed choice is always important when you choose to access your credit in an impactful way. For many, credit limits are an inherent part of their safety nets. In such situations, when hit by sudden necessary debt load, one is banished to credit utilization ratio (CUR) purgatory and a lower credit score. Lower your credit utilization ratio (CUR) as fast as possible and return to credit score glory.

Take the CUR

There are 3 ways to improve your CUR:

• Lower balances on revolving charge accounts
  • Costs you money
  • Lowers total debt load and improves your debt to income ratio (DTI)
• Have your credit limits raised by your creditors
  • Based on your payment history and other requirements imposed by the creditor
  • Based on overall credit score and (CUR)
  • Will generate a hard inquiry on your credit report
• Become an authorized user
  • Find the right authorized user
  • Does not work with Vantage Score models
  • Increases your available credit limits
  • No inquiry

​CUR Best Practices:  Be proactive

• Ask each creditor: 
  • When your account is scheduled for a limit increase review. If they increase your limit without you asking, it doesn’t generate a hard inquiry.
  • Take note of your accounts' credit limit review anniversary dates and seek annual limit increases without a hard inquiry. Contact them to find out the results of the scheduled review or watch your statement for a limit change.

• Stop using low limit credit cards when possible.
  • Don't close them if they have a good payment history.
  • This can be especially hard if you are using secured credit cards to build your credit.

• Strategically open and stringently underutilize higher limit revolving accounts