If you've recently filed for Chapter 7 bankruptcy protection, or are considering filing in the near future, you may be wondering about the effect this will have on your credit score. Poor credit or black marks on your credit report (such as late payments, foreclosure, and bankruptcy) can affect your ability to qualify for credit in the future. Sometimes your credit score can even impact things like your home and car insurance rates. Read on to learn more about how a bankruptcy affects your credit rating, as well as simple ways to begin to rebuild your credit after you've filed for bankruptcy.
What does bankruptcy do to your credit?
Filing for Chapter 7 bankruptcy will likely cause your credit scores to plummet to between 500 and 600. The higher your score is before you file, the more total points you'll lose, but your final credit score should end up in the same range as others with better or worse pre-bankruptcy credit. You can moderately reduce the hit to your credit by filing bankruptcy as soon as you realize your debt situation is irreparable, rather than waiting until you've had one or more debts sent to a debt-collection agency or negatively reported on your credit report.
How can you rebuild your credit after filing bankruptcy?
Luckily, the damage to your credit doesn't last forever. Your credit score should improve on its own within 7 to 10 years, even if you don't take any action to improve your credit. However, you can speed this process by doing a couple of things.
- Apply for credit as soon as you are able. Even just after you file, you should qualify for a low-limit, high-interest credit card. Many credit providers are willing to extend these types of offers to the recently bankrupted because you are legally prohibited from filing bankruptcy within the next eight years. By charging occasional expenses to this card and paying it off in full each month, you can show credit reporting agencies that you are a responsible consumer, and your score will rise.
- Become an authorized user. If you have a spouse or other close relative who has good credit, you may wish to apply to be an authorized user on one of their credit cards. This allows you to "piggyback" on their good credit -- the more this card is used (and paid off), the higher your score will rise, even if you never make a single charge yourself.
For more information, contact an attorney who specializes in bankruptcy, such as Wagner Law Office PC.