Personal Finance: Re-establish credit after…

Veteran personal finance journalist Robert Powell answers questions from USA WEEKEND readers. His column runs Tuesdays and Thursdays at usaweekend.com.

After a bankruptcy, how can I start new credit?

— Magali Trujillo, Houston

There's plenty you can do to rebuild credit. But there's a right way and wrong to go about it, says Gail Cunningham of the National Foundation for Credit Counseling.

First: Put your financial house in order. Get a copy of your credit report for free from AnnualCreditReport.com and deal with any outstanding debts or inaccuracies. Next, create a budget, track your income and expenses, and spend money only on what's important and essential. Also, create a record of your assets and liabilities, a balance sheet. And don't forget to set aside money for an emergency fund equal to at least one month's salary, if not more.

Once you've done all that, you can start rebuilding credit by applying for a credit card. But it needs to be the card that is right for your situation, says Cunningham. Research cards at Bankrate.com to see which banks offer cards to people with poor credit records.

You may decide that a secured card is a good place to start. Look for a secured card with the best rates, lowest fees and reports to the credit bureau. A secured credit card, as the name implies, is an account secured by a deposit made to the issuer, says Cunningham. After you've developed a history of making payments in a responsible manner, you can apply for an unsecured card.

Other suggestions from Cunningham and the NFCC: Take out a small personal loan from a bank or credit union. Consider a co-signer, if needed. Don't apply for too much credit at once, but do apply for a variety of credit types. Check out NFCC.org for more tips.

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