The Short Answer
Step 4 of rebuilding your credit after bankruptcy is straightforward: pay your monthly bills on time, every month — without exception. The most effective way to do this is to route one or two utility bills through your new unsecured credit card, then set that card to auto-pay from your bank account each month. Cut up the physical card so you aren't tempted to overspend, but keep the account open so the positive payment history keeps building. Follow this system consistently and you'll see your credit score climb steadily over time.
“Rebuilding Your Credit After Bankruptcy in 6 Steps” is a series of posts that will appear over the course of the next couple of weeks. Following these 6 steps will help you lay the foundation to achieve better credit. Here are the six steps:
Step #1: Review Your Credit Reports
Step #2: Get a Secured Credit Card
Step #3: Get an Unsecured Credit Card
Step #4: Pay Your Monthly Bills, On Time and Every Month
Step #5: When Appropriate, Get and Pay a Mortgage Payment or Car Loan
Step #6: After Seven (7) Years Ask the Credit Bureaus to Remove the Bankruptcy Off of Your Credit Report
I’m sure you never thought this would be the case but this is the easiest step of them all. If you’ve followed the three steps before this you should have cleaned up your credit report, spent a year laying the foundation for your new credit with a secured credit card and now you should have obtained a reasonable unsecured credit card.
Once you have received your new unsecured credit card don’t use it. Not yet at least. Using that new unsecured credit card, contact the company for your water, cable or some other utility bill that you have and let them know you want to automatically pay that bill each month with that credit card. You probably shouldn’t put all of your utilities on the credit card. Instead, pick one or two utility bills and have them paid automatically each month on the credit card. Next, coordinate with your bank and credit card billing department and give them permission to automatically take the monthly balance of the credit card out of your bank each month.
Next, take your favorite and sharpest pair of scissors and cut up the credit card into 100 little pieces. (Okay, it doesn’t really need to be 100 but you should cut it up so you can’t use it any more.) However, make sure you do not close down the account with the credit card. We want to leave this credit card open and have those one or two utility bills paid each month with the card. The credit card company should then automatically withdraw that amount from your bank.
Now that those one or two utility bills are set up to be paid each and every month your credit will benefit. With that said, you have to continue to pay your other bills and live your life responsibly. However, following this plan and living within your means you will watch your credit score increase exponentially.
Key Takeaways
- Use your new unsecured credit card to automatically pay one or two utility bills each month — not all of them.
- Set up automatic payment from your bank account to cover the credit card balance in full every month.
- Cut the physical card into pieces to eliminate the temptation to use it for anything else, but do not close the account.
- Keeping the account open and consistently paid builds positive payment history, which is one of the biggest factors in your credit score.
- Living within your means and paying every other bill on time is just as important as the credit card strategy itself.
Attorney Insight
The mistake I see most often post-bankruptcy is people closing every credit account they get, thinking a zero balance with no open accounts looks responsible to lenders — it doesn't. Payment history and available credit both factor into your score, so closing that unsecured card the moment you get it wipes out the very history you spent months building. The auto-pay system described here works precisely because it removes human decision-making from the equation: the bill gets paid, the card gets paid, and your credit file gets a positive mark every single month without you having to think about it. After nearly 30 years of watching clients rebuild after bankruptcy, the ones who automate this step are the ones who call me a few years later surprised at how far their score has come.
