One of the most pervasive myths about bankruptcy is the common belief that it will permanently damage your credit and make it impossible for you to obtain lines of credit in the future. If that were really the case, then almost no one would go through with bankruptcy proceedings.

While it is true that bankruptcy has an immediate negative effect on your credit score or that it persists on your credit report for years, the impact is actually less than what you might think. Especially when you consider the way that multiple delinquent or overdrawn accounts could drag down your score, the impact of bankruptcy could be less than letting things continue on their current path.

Your bankruptcy is probably going to take your credit from okay to poor

Depending on what your current credit score is, the numerical impact of filing bankruptcy could be that lenders will temporarily refuse to loan you money. There are multiple factors, including whether you file for Chapter 7 or Chapter 13 bankruptcy, that influence the exact point drop, but you can expect the bankruptcy to have an immediate negative effect on your score to the tune of somewhere between 160 and 220 points. That can mean dropping an entire category as far as your credit rating.

How long does bankruptcy stay on your credit report?

The length of the negative impact of your bankruptcy will depend specifically on what kind of bankruptcy you file. For those who receive a discharge under Chapter 7 bankruptcy proceedings, your credit report will reflect that discharge for a full 10 years. If you file Chapter 13 bankruptcy, the discharge will remain on your credit report for seven years, just like any other blemish.

When can you qualify for credit again?

Believe it or not, you don’t need to wait for your bankruptcy to roll off your credit report to start using credit again. Many people can get secured credit cards within weeks of their discharge. Better credit card offers will typically become available after a year or two, especially if you use a secured card to begin building a positive payment history.

The potential to rebuild your credit is one reason why credit counseling during bankruptcy is so important. You can learn from the situation and set yourself up for future financial success.

Many people find that they can qualify for vehicle loans and mortgages within two years of filing, although the impact of the bankruptcy on your creditworthiness goes down every year, meaning that the longer you wait, the less the lenders will penalize you for having a bankruptcy on your credit report.