What Happens to Your Credit Score After Bankruptcy?

May 05, 2012

Of course, your credit score is lower after filing for bankruptcy. But in a large number of cases, that initial drop precedes a rebound that allows the person to enjoy a better credit rating than they've had in many years. The key is to use the bankruptcy experience to start a clean slate for better money management practices. Your previous bankruptcy experience will soon be outweighed by on-time payments, a lower debt-to-income ratio and more money in the bank.

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Your Credit Report is Notated News of your bankruptcy is sent to the three major credit reporting bureaus. These bureaus will look at what your score was before the bankruptcy, add the bankruptcy information, take into account how many accounts you bankrupted on and determine a score based on these three things. This will, of course, translate into a drop in your credit score. But if you have a history of late payments or repossessions, the bankruptcy puts a halt to all this, opening the door for rebuilding a better credit score in the future. If you continue without bankruptcy, there is nothing to put a stop to those late payments and other negative credit hits.

  Rebuild Your Score Once your bankruptcy is discharged, take a look at your financial situation. Can you afford to put some or all of the payments you used to make to creditors into a savings account? Can you use some or all of the money you're saving to put toward one of the bills you reaffirmed on, paying off the car or home sooner? Use the freedom from these debts to put yourself in a more sounds financial situation. You can rebuild you credit after filing bankruptcy by following a strict financial plan. Pay the bills you still have, such as your home, car, utilities, student loans, child support, etc. on time. The score you have six months after bankruptcy is largely up to you. Credit scores after filing bankruptcy can be as high as 600 in six months with regular, on time payments.

  Ways to Build Take a secured credit card, car loan or other loan, even if it comes with a high interest rate. Pay the bill on time. If it is a credit card, pay it almost all the way off each month, leaving a low balance. This keeps down the amount you pay in interest as well as giving your credit score a much-needed boost. Never buy something on credit that you can't afford to pay off. With careful management, you can come through bankruptcy and build a better credit score than you ever had before.

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