Your Credit Score Before and After Bankruptcy

Your Credit Score Before and After Bankruptcy

As you might imagine, going through bankruptcy can affect your credit score. How much and for how long depends on previous credit history and the type of bankruptcy filed. A low credit score can make it difficult to get home mortgage loans, car loans and can affect the interest rates on loans you do get. However, while it is important to keep up a good credit score, filing for bankruptcy doesn't have to mean the end of your good credit forever, nor does it mean you will never own a home in the future.

FICO, the most common credit rating, ranges in score from 350 to 800, with most people in the 600s and 700s. A person with a previously good credit score in the 700s can have his or her score fall by as much as 100 points after bankruptcy. Those with already low credit scores won't be affected nearly as much.

What type of bankruptcy you file can affect your score as well. A Chapter 7 bankruptcy can stay on your FICO credit score for up to 10 years, while a Chapter 13 bankruptcy will affect your FICO credit score for no more than 7 years.

Keep in mind that some alternatives to bankruptcy, such as allowing your home to be foreclosed, will lower your credit score much more than a bankruptcy will.

Establishing Good Credit After Bankruptcy

While there isn't a quick fix to re-establishing credit, knowing how your credit score works can help you. About 35 percent of your score is determined by credit history, so it is important to keep bills up-to-date after bankruptcy. Lenders look to recent behavior, so even just a year or two after bankruptcy, you can start to see improvements on your score and offers of credit. Just remember:

  • Pay bills on time
  • Keep credit low and manageable
  • Make sure all of your new good credit is being reported monthly
  • Be patient, your score won't improve overnight

If you want to start working on your credit immediately, look to other forms of credit open to recent bankruptcy filers. Secured credit cards, for example, use your own cash deposit, instead of just giving credit, and can be a good way to begin immediately improving your credit score.

Filing for bankruptcy is an important decision. If you are considering bankruptcy, consult with an attorney to discuss your options.