How Soon will my Credit Score Improve After Bankruptcy?

The decision to file for bankruptcy is a difficult task. The legal process can not only be challenging but damaging to your credit. But know this: the effect of bankruptcy on your credit report isn’t forever. It will last for 7-10 years depending upon the type, and the impact of bankruptcy decreases over time.

You can improve your credit score by removing your bankruptcy, which we will talk about, below. But you will need to request a new credit score after removing bankruptcy to see its impact.

In this article, we will share with you how to get on the right track after bankruptcy.

How Long Does Bankruptcy Stay on My Credit Report?

The Chapter 7 bankruptcy can stay on your credit report for up to 10 years from the date it was filed.

If you file a Chapter 13 bankruptcy will fall off your report after seven years from the date it was filed.

After the allotted 7 or 10 years, the bankruptcy will fall off your credit report.

Need for a Loan or Credit Card Immediately After Bankruptcy

Most mortgage companies provide FHA loans for the average credit score range. Traditional financing options require a score of about 600 or higher.

There are options for buying high-cost necessities after filing bankruptcy claims. Secured credit cards and loans exist for people who face bankruptcy.

You can opt for either credit builder loans or other financing options.

How does bankruptcy affect my credit score?

Bankruptcy will have a huge impact if your credit score is high. You have more to lose when you have a good credit score.

If you already have a bad credit score then the point damage may not be that bad.

Will my Credit Score Improve After Bankruptcy?

Rebuilding your credit after bankruptcy seems to be the toughest task. But there are some actions you can take to help your credit history begin to recover.

On-time Payments

Sometimes the court will allow you to keep certain accounts open. If you still have accounts open and active, then make every payment on time. Make sure all payments are on time going forward.

Payment history accounts for your FICO Score calculation. It will be good if you make payments on time when rebuilding credit after bankruptcy. Making consistent, on-time payments can improve your score.

Create a new Account

If you are not having any remaining open accounts, it is difficult to qualify for new credit after bankruptcy.

In this case, you can opt for opening a secured credit card, or getting a credit-builder loan. You can ask your friend or family member to add you as an authorized user on their credit card.

You can make small purchases and then pay the balance each month, which will help in building a positive payment history. It helps in dropping the negative impact of bankruptcy.

Have a look at the credit report

Take a look at your credit report frequently. So that you can determine the factors that affect your credit scores. You can also request a free credit report from any of the credit bureaus. (Experian, Equifax, and TransUnion)

By understanding what makes up your credit score, you can make targeted improvements and determine why your credit score is not increasing.

You’ll be able to spot any errors that put your score down- like incorrect account information or public records.

By reviewing your credit report you can also confirm whether your bankruptcy is removed or not.

Emergency Savings Fund

Try to build an emergency savings account, so that you’re covered for unexpected expenses like medical bills. This will help you to avoid incurring future debt that slows down your effort to rebuild your credit.

Get a Secured Credit Card

Reducing your dependence on credit cards is an important step toward rebuilding your credit.

Taking out a secured credit card requires making a refundable security deposit and borrowing against it. These cards provide high-interest rates.

Applying for a secured card doesn’t guarantee acceptance. So it is better to take time to research the provider’s requirements before applying for it. Choose a provider who offers a pre-qualification process, so that you can see whether you qualify before agreeing to a hard credit check, which itself could affect your credit rating. To get a secured credit card in no time, check out the service of TheCreditPros.

Choose Credit-builder Loan

A credit-builder loan is another way to build your credit without qualifying for a traditional loan. The lender holds a certain amount of money in a secured savings account or certificate of deposit in the borrower’s name. The borrower then makes monthly payments including interest until the loan is completely paid.

Depending on your bank, you may have the option of a secured loan. In which you borrow against money already in your savings account. In traditional loans, the financial institution reports credit-builder loan payments to the credit bureaus. It helps improve your score over time.

Become an Authorized User

Building your credit as an authorized user on someone else’s credit card is acceptable. Being an authorized user involves having a card attached to another borrower’s account, not to your account.

You’ll be able to use the card for purchases without having to qualify for the account. But you cannot do any changes to the account.

Credit card payments will show up on your credit report. If you make the payments on time, the credit utilization ratio will stay low. Your score will improve over time. 

Make sure the credit card company reports authorized user payments to the credit bureaus, which increases your credit score.

Bankruptcy Debt Discharges in Your Credit

The number of debts and amounts you discharge impact your bankruptcy credit score. By default, several accounts with large balances have more effect than low debt elimination.

Your credit history may play a major role if you have positive as well as negative accounts. The ratio between these accounts can make some difference in your score.

If your score was high before a bankruptcy, there will a measurable drop after filing. But after some time the impact will get reduced.

Also, Read

How to Recover From a Lifetime of Bad Credit

How to Protect Credit When Unemployed

How to Recover From a Medical Bankruptcy

Key Takeaway

So finally, during your bankruptcy, take a look at your credit reports. Check out for errors and then file disputes.

You can get help from credit repair services that can spot inaccuracies and dispute errors. They can coach you in getting the best credit score. 

Rebuilding your credit score after a negative event takes time. There is no exception for bankruptcy, as well. In the beginning, they will only increase your credit score in small amounts, but on-time payments will boost your score higher.