Credit and Credit Scores after Bankruptcy

Filing bankruptcy is a series decision that impacts an individual’s credit and credit score for quite some time.  Bankruptcy doesn’t have to shut off credit access altogether nor does filing bankruptcy have to be significant detriment for financial success.  There are certainly numerous cases of individuals that have filed for bankruptcy and rebounded stronger and gone on to create significant wealth.

A bankruptcy is always one of the biggest negative factors that impact a credit score.  How much of an impact it will have on an individual score will depend on the entire credit history and data in the credit report.  As time passes, the negative impact of the bankruptcy decreases and the credit score will improve.  A credit score can improve significantly faster with a little help and work.

Consumers who file for bankruptcy, file for a variety of reasons ranging from job loss, divorce, medical costs to poor credit decisions.  In general, the reason for the bankruptcy doesn’t matter to future lenders and or the credit score calculation.  If an individual filed for bankruptcy protection regarding only medical services this would have somewhat of a slighter impact than a bankruptcy that affects all credit.  But bankruptcies that only include medial costs are rare and the credit score is going to take a big hit do to the bankruptcy record in most any situation. 

The impact to an individual’s scores regarding future credit prospects are the same since most all loan decisions no longer look at qualitative factors such as why an individuals credit is poor rather banks and lenders just numbers such as the credit score and debt ratios, etc…

A credit score takes a big hit from the records of the bankruptcy on the credit report; the impact is different for all cases since the credit history of the individual is different before the bankruptcy.  The credit reports of individuals that file bankruptcy often look bad with numerous late payments, collections, and judgments.  The credit scores in these cases are already hammered pretty hard before any bankruptcy filing hits the credit report.

After a bankruptcy has been filed, the sooner the individual begins reestablishing credit in good standing, the sooner the credit score will rebound.

For those consumers that have credit available after the bankruptcy, they should keep that credit open.  If an individual was able to keep a credit card that was not included in the bankruptcy because there was no balance on it, keeping the line of credit on the credit card open will help rebuild the credit score. 

A good start for new credit is to obtain a secured credit card.  In may help to even obtain more than one card and continually make monthly payments on time without running up new long term debt.  As more time goes by after the bankruptcy the impact of the bankruptcy on the credit score lessens, and it may be possible to apply for a traditional credit card without security. 

In general, the derogatory account information reported on a credit report has the most adverse affect on a credit score for the first 24 months after it is recorded.  Once an individual is discharged from bankruptcy, they can apply and open new credit whether it’s a bank credit card, retail charge card, gas card and loan.

The nest step after establishing new credit, whether it be on existing accounts or secured credit cards, is to credit any inaccuracies in the credit report that may be holding the credit score down.  If an individual finds inaccurate records on accounts that should be removed due to the dates or balances or amount owed, they have the right to dispute these errors.  A dispute letter should be sent to each of the credit reporting agencies to correct the errors at Equifax, Experian, and TransUnion no matter how small the error is.

For each of the derogatory records or accounts on a credit report such as collection accounts or judgments or late payments, it is always helpful to check the dates and balances to see if either the amount is wrong on these accounts or to see if the account is past the deadline to remain in the report.  Credit scores often have the greatest improvements when expired, derogatory data is removed or inaccurate derogatory data is removed.  A key element regarding inaccurate balances is that if the creditor can not validate the amount to the credit reporting agency it has to be removed.

As a final note, always be extra careful not to make any late payments, using new credit responsibly, and don’t apply for too much credit without a purpose.  Overtime a credit score will improve as new positive records are posted to the credit report.

The information about bankruptcy is for educational purposes only and is believed to be accurate but is not complete.  Freecreditscorehelp.com does not offer legal advice.  It is strongly recommended that individuals seek professional legal advice in the event of a bankruptcy filing.