Filing bankruptcy can help you when your financial situation gets out of control. However, it can also cause your credit score to fall.
While this may be disappointing news, the truth about how bankruptcy impacts your credit score may help you see why filing may be beneficial and help provide you with some financial relief.
How long does bankruptcy impact your credit rating?
There’s a myth that all bankruptcy information remains on your credit report for 10 years. However, only the public record of chapter 7 bankruptcy lasts for 10 years. Other bankruptcy filings will fall off your credit report after seven years.
In addition, you have to consider this fact: If you’re already at the point where you can’t pay your bills on time, your credit is already suffering. Bankruptcy helps hit the “reset” button a lot faster.
Rebuilding your credit
Some people believe that you will have poor credit for the duration of your bankruptcy record. However, it’s possible to begin rebuilding it almost immediately. After four or five years of work, you may even be back in the “good” range for your credit score. The best way to start rebuilding your credit after filing for bankruptcy includes:
- Getting new credit
- Making payments on time
- Keeping your balances under 30% utilization
- Not all bankruptcy filings are created equal
The way bankruptcy impacts your credit rating and someone else’s is unique to your situation. It is dependent on factors like how much debt you have discharged and the ratio of positive to negative accounts on our credit report. If you only include a few accounts in your bankruptcy filing, your credit score will remain higher than someone with higher debt.
Understanding the truth about bankruptcy
Filing for bankruptcy is an effective way to restore your financial peace of mind. However, knowing the truth will help you decide if it is the best move for your situation. You have legal options and resources, so be sure to use them when making this decision.
