Bankruptcy and My Credit Score — How Does My Bankruptcy Case Impact My Credit Rating?

Do not let the bankruptcy myth that your credit score will never improve if you file bankruptcy prevent you from receiving the help you need to get out of debt. Many people let the fear of a bad credit score keep them from seeking advice from an experienced bankruptcy attorney. Unfortunately, they never learn the truth about bankruptcy and credit scores.

Bankruptcy attorneys offer free consultations so that you can ask questions and learn the truth about bankruptcy and credit scores. You may be surprised to learn that many debtors begin to see an improvement in their credit scores as early as a year after their bankruptcy case is closed and discharged.

Do not let a fear of hurting your credit score keep you from getting advice from an experienced bankruptcy lawyer. Schedule your free case review today.

The Truth — Your Credit Score is Probably Already Damaged

By the time most people consult a bankruptcy attorney about filing a Chapter 7 or Chapter 13 case, they have fallen behind on their bills. Making payments late is one of the easiest and quickest ways to damage a credit score. Your payment history accounts for 35 percent of your credit score. Therefore, a few late payments can bring your credit score down. A lot of missed payments can significantly lower your credit score.

In addition to late payments, many people have maxed out their credit cards and other accounts by the time they call a bankruptcy lawyer for a free consultation. The amount owed on credit accounts is the second largest factor used to compute your credit score (30 percent). Therefore, if you have maxed out credit cards to pay living expenses and other bills, your credit score has already been damaged.

The other factors that impact your credit score are the length of your credit history (15 percent); new credit (10 percent); and, different credit accounts (10 percent). Other factors that can lower your credit score include negative events such as collections and judgments.

Filing Bankruptcy Can Improve Your Credit Score Faster Than Ignoring the Problem

If you ignore your debt problems, you are likely to receive additional collection notices and debt collection lawsuits. As creditors continue to report late payments and high balances, your credit score will not improve. It can take three years or longer for late payments to be removed from a credit report.

Filing bankruptcy stops negative reporting. Creditors cannot take any actions to collect a discharged debt, including turning over accounts to collection agencies, filing debt collection lawsuits, and reporting late payments. Creditors should report that the account has been discharged in bankruptcy. Discharged debts should have a zero balance on your credit report, and late payments should stop being notated on the account.

You may need to contact some creditors and the credit reporting agencies to ensure discharged accounts are correctly reflected on your credit report. However, once creditors stop reporting late payments and other negative information, you can begin to repair your credit score after bankruptcy.

Improving Credit Scores After Bankruptcy

There is life after bankruptcy. You can improve your credit score, purchase a new home, and qualify for a car loan. With patience and time, you can repair and rebuild your credit rating after bankruptcy.

You can begin repairing your credit score by using the information you learn in your bankruptcy courses. The Credit Counseling Course and the Debtor Education Course supply tips and information about managing finances, budgeting, saving money, and using credit. These tips and suggestions are a good foundation for beginning the task of improving your credit score after bankruptcy.

Some tips you may want to keep in mind include:

  • Make all future credit payments on time. Remember, payment history accounts for 35 percent of your credit score.
  • When you begin using credit again, do not use more than 30 percent of the available credit on an account. Amounts owed is the second largest factor used in calculating your credit score.
  • Consider a secured credit card. You will have a low credit limit, and you must place a security deposit with the company, but a secured credit card may be a good way to begin improving your credit rating. Make sure you verify that the company reports your information to the credit reporting agencies.
  • Obtain copies of your credit report from all three credit reporting agencies each year. Carefully review the reports for errors. Report any errors or mistakes to the creditor and the credit reporting agencies. Follow up to ensure the information is corrected. You can obtain free copies of your credit report every 12 months from all three credit reporting agencies.
  • If a creditor with a zero balance did not close the account when you filed for bankruptcy relief, do not close the account. It adds to the length of your credit history, especially if you can use the account now.
  • Create and live within a budget. You should avoid using credit until you can pay for the payments in your budget and you have an emergency savings account.

Remember, if you are in a Chapter 13 case, you cannot incur credit until your case is closed. However, you can make all your mortgage payments and other payments outside of your plan on time to begin repairing your credit score during your Chapter 13 case..

For more information on improving your credit score after bankruptcy, visit the FTC’s website or the FICO website.

Contact A Bankruptcy Attorney for More Information

If you are struggling with debts that you cannot pay, a bankruptcy attorney may be able to help. Schedule a free consultation with a bankruptcy lawyer to discuss how a Chapter 7 or Chapter 13 bankruptcy case can help you get out of debt and protect your property.

You do not have to continue to struggle with debts you cannot afford to pay. The bankruptcy process was designed for individuals who need assistance in gaining a fresh start to rebuild after a financial crisis.