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How long will a bankruptcy affect my credit?

On Behalf of | Oct 23, 2019 | Bankruptcy

Many people who are burdened with significant debt don’t want to consider filing bankruptcy because of how it will affect their credit. Some even think they will never have good credit again if they have a bankruptcy on their credit report. However, that is not the case.

A Chapter 7 bankruptcy will stay on your credit report for 10 years, while a Chapter 13 bankruptcy will be on your report for seven. Yet, even with those on your credit report, you can improve your credit during that time.

How to improve credit after bankruptcy

Right after a bankruptcy settles, your credit score could go down up to 200 points. It also may be more adversely affected if you’ve had good credit up until filing for bankruptcy. That’s a short-term setback though. Your credit score can uptick not too long after filing bankruptcy because you have discharged debt, which helps your credit utilization ratio—the amount of debt you have versus what you could borrow.

After your bankruptcy is settled, you should consider getting a secured credit card to begin rebuilding your credit history. It will take time to improve, but your credit score will go up if you make on-time payments for any future debts. You also need to keep your debts under a 30% utilization—that means you don’t have debts above 30% of the total credit available.

When your credit will be less impacted

Each year, you continue to practice better financial spending habits, your score will improve more. In fact, FICO estimates if you had a 680 credit score before bankruptcy and don’t have any new negative information on your file after it, you can rebuild your credit score to 680 again within five years.

As a result, filing bankruptcy doesn’t have to impact your credit for as long as you might think. Sometimes, it’s the best option for those who are looking for a fresh start.

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