How much will a bankruptcy affect a credit score?

One of the biggest worries you may have with considering bankruptcy is the detrimental effect it may have on your credit and credit score. While it is true that bankruptcy will have an impact on your credit score, by not filing for bankruptcy you can suffer the same type of damage to your report.

Many people are worried about an immediate hit on their credit report after bankruptcy which can make a credit score go down by 150 to 240 points. However, over the course of one to three years of missed payments, late payments and credit card charge offs, your credit can experience the same type of result. But after bankruptcy you can take steps to build up your credit and get yourself back on solid financial footing. Without bankruptcy, it can be much more difficult to increase your credit score and repair your credit report.

Improving your credit score after bankruptcy

After bankruptcy, you will want to immediately begin working on building up your credit score back up. This can make it easier to be approved for loans with lower interest rates. Whether you file for Chapter 7 or Chapter 13 bankruptcy, doing the following can help begin the process of improving your credit score.

Keep a close eye on your credit report – By regularly monitoring your credit report, you can make sure that nothing has been reported incorrectly which can stall your credit score climb. If you do find something amiss, you can contact the issuer of the report who can check on the mistake with the lender.

Get new credit – Though it can take between seven and ten years for a bankruptcy to come off your credit report, it does not mean you should not show you are now financially responsible by having available credit. Having available credit is a positive indicator for your credit score. You may be able to only secure credit cards with high fees and interest rates, but if you stay responsible, you can slowly continue to see better offers and credit availability.

Do not close older active accounts – Back in a time when you were not under such financial stress and your credit was good, you may have had accounts that are still on your report. You should not close these accounts. Since the length of credit history can make up about 15 percent of your credit score, there is no reason to take these accounts off your credit report.

While a bankruptcy on your credit report will have a negative impact on your credit score, after a significant initial hit you can begin working on bringing that number back up. Bankruptcy is often called a fresh start because it is almost like starting over. You may find that working on your financial goals from a fresh start is preferable than doing it while in significant debt.