Many people worry about their ability to secure loans, find housing, or apply for jobs in certain industries if they have a bankruptcy affecting their credit score. Knowing what to expect can help you make an informed decision.
A Sudden Decrease in Your Credit Score
Don’t be surprised or panicked if you notice a sudden drop in your credit score at one or multiple bureaus. Bankruptcy is a derogatory mark on your credit report, and it can significantly decrease your creditworthiness in the eyes of lenders. This is especially true if your accounts are current or only slightly delinquent, as your credit score may not have been seriously impacted by your growing amount of debt. While it is hard to accept a decrease in your credit score, don’t worry. There are many ways you can strengthen your score over time.
When Bankruptcy Can Help Your Credit Score
In some cases, bankruptcy may only have a brief minimal negative effect on your credit score, followed by a rather speedy recovery. If you waited until bankruptcy was unavoidable, you may have many delinquent accounts, accounts in collections, and defaulted accounts. If that is the case, keep in mind that a credit score can only go so low -- 300 in the case of a FICO score. But when your debt is discharged in bankruptcy, all of these negative marks are quickly removed from your credit report, and your debts are reported as being discharged. Therefore, even with the impact of a bankruptcy on your credit report, your credit score can improve rather quickly.
How Your Score Changes Over Time
Sometimes, however, the recovery is not quick. While you may be concerned with the immediate change to your credit score, it’s important to consider the long-term benefits of a fresh financial start.
Over time, negative marks on your report have less of an impact on your score. The more time that passes after the reporting of these negative marks, one of which might be a bankruptcy, the more your score should recover. This creates a new start for your family and gives you the chance to change your financial future. If you’re in a position where you need to file for bankruptcy, a change to your credit score is less important than how bankruptcy might put you in a more stable long-term financial situation.Is bankruptcy the right choice for your financial health and mental wellbeing? To discuss your options, contact Blossom Law to schedule your free phone consultation.