Most individuals avoid Filing Bankruptcy due to its negative influence on their credit score.
Usually, the impact of bankruptcy takes ten years to clear up from your credit report.
The detrimental effect of Bankruptcy on the credit score lies between 160 to 220 points, depending upon the type of Bankruptcy you had filed.
Needless to say, such a drop of credit scores can drive your credit score
from good to worse.
While you wait for your credit score to remedied itself, you can also add some crucial measures to heighten your credit report.
There are ways following which you can still run a successful financial life alongside waiting for your bankruptcy to completely drop off from the report.
The existence of Bankruptcy on your Credit Report:
Under Chapter 7
A bankruptcy will take up to ten years to completely discharge from a credit report. Also, all debts are discharged within a few months and apparently dropped off from the report after a few years.
Altogether, It takes 7 years for the discharged debt to drop off from your
Under Chapter 13
A bankruptcy will stay in your report for up to seven years along with your
Apart from that, you will still find some active debts in your report for three to five years.
Furthermore, all your discharged debts also remain on the report longer than the bankruptcy.
How to Improve your Credit Score After Bankruptcy?
1. Reestablish Credit as Soon as Possible
After getting a discharge in Bankruptcy, make sure to apply for a credit as soon as possible. It’s a great step for rebuilding some score and reinstating your credit history.
Various ways to Rebuild your Credit Score:
1. Car Loans
Availing a car loan is much easier compared to other types of loans provided you pay a considerable down payment.
After your bankruptcy is cleared, start saving some money for the down payment and try to apply for a car loan within six months.
2. Secured Credit Cards
You don't have to follow a series of complicated processes for availing a secured credit card.
All you have to do is pay a lump sum amount as collateral. The credit card company will issue a card with a limit as per your collateral.
You can also apply for store credit cards, but those cards come with hefty fees and interest rates.
2. Choose Your Credit Card Wisely
You might assume that a fresh bankruptcy will hurt your chances of issuing a credit card.
Contrarily, you are perfect prey for lenders. As the law forbids you to apply for a second bankruptcy for several years, you can't default in your payment.
However, stay away from fishy credit card schemes which often consists of mandatory fees, minimum payments, and tremendously high-interest rates.
Initially, you will only get lenders from small banks, but after a few years, you will get a nod from national banks as well.
With proper usage of credit cards with timely payment by due dates, you will see some escalation in your credit score.
Just stay on the right track through timely payment and maintaining an A+ Grade to create a decent credit score.
3. Old is Gold
You will be happy to know that your credit history’s length makes up to 15% of your score, which remains unaffected even after bankruptcy.
If you used to own good credit history, then keep your oldest accounts alive. Some older items from your previous credit history might help with your credit
score even if they are declared bankruptcy later.
4. Don’t Apply to Multiple Lenders
When you apply for a credit card, car loan or mortgages to multiple creditors simultaneously, most Credit Rating Companies consider it a bad sign.
Never open multiple new accounts or start applying abruptly to different lenders. Almost 10% of your credit score is determined upon your recent application for loans, mortgage or credit cards for improving your credit score.
It is no doubt that bankruptcy will bring down your credit report to a new low but that’s quite common on the initial stage.
Over time you will realize, it will become more irrelevant provided you maintain healthy financial habits and create new credit points as soon as possible.
Actively monitoring your credit report and being responsible with your debt will help you in the long run.
Hopefully this article explained enough for you to understand the process. If you have any other questions please contact us for a free consultation.