How Long Will Bankruptcy Affect My Credit Score?
One reason that many people are hesitant to consider bankruptcy is because they do not want their credit score to be negatively affected. This score can play a significant role in your ability to obtain credit or loans in the future, so if you are planning to buy a home or car or make other large purchases, you may worry that bankruptcy will prevent you from doing so. However, if you are considering bankruptcy, it is likely that you are already encountering issues that may significantly lower your credit score, such as missed payments on credit card debts or other bills. Rather than trying to dig your way out of the hole you are in, bankruptcy can provide you with a fresh start, and while your credit score may take a hit, you can begin rebuilding your credit after wiping out some or all of your debts.
Time Needed to Rebuild Credit After Bankruptcy
Chapter 7 bankruptcy will remain on your record for 10 years. While a bankruptcy filing may limit your opportunities to receive loans, as time passes after a bankruptcy, creditors will be less likely to see you as a risk.
To increase your credit score and make yourself more attractive to creditors, you can take a number of steps in the years following a bankruptcy, including:
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Get a secured credit card - With this type of card, you will put a certain amount of money down as collateral. This will allow you to use the card to make purchases, and by making regular payments and paying off balances whenever possible, you can demonstrate that you are financially responsible.
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Consider a credit-builder loan - Some banks or financial institutions offer these types of loans, which will allow you to make regular payments that will be placed in an account that will be made available to you once the term of the loan is complete. This can not only help build your credit, it can also be a good method of saving money to use in the future.
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Get a co-signer - If you do need to take out a loan, you may be able to have a family member or friend co-sign the loan to guarantee that payments will be made. This may allow you to receive credit in situations where a creditor would not otherwise approve you for a loan.
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Keep balances low and make regular payments - If you do obtain new credit cards, you can increase your credit score by maintaining a low credit utilization ratio. This ratio is the amount of debt you have compared to your total credit limit. That is, if you have a limit of $2,000, a balance of $500 would give you a credit utilization ratio of 25 percent. Ideally, you will want to keep your credit utilization ratio below 30 percent. Making regular, consistent, on-time payments toward debts, as well as utility bills and other expenses, will also help your credit score increase.
Contact Our Charlotte Bankruptcy and Credit Score Attorney
Rebuilding credit can take time, but ultimately, receiving a fresh start through bankruptcy can place you in a much better position than if you were struggling to maintain financial stability, repay large debts, and deal with harassment from creditors. At Blossom Law PLLC, we can explain your options for bankruptcy and debt relief, and we will help your family get back on the right financial track. Contact our Mecklenberg County bankruptcy lawyer today by calling 704-256-7766 and arranging a complimentary consultation.
Sources:
https://www.experian.com/blogs/ask-experian/how-does-filing-bankruptcy-affect-your-credit
https://www.marketwatch.com/story/7-common-myths-about-how-bankruptcy-affects-credit-2018-03-16
https://www.forbes.com/advisor/credit-score/rebuilding-credit-after-bankruptcy/