12 Jun How Bankruptcy Affects Your Credit Report
How Bankruptcy Affects Your Credit Report
If you’re like a lot of people, your first experience with bankruptcy is knowing that it’s how you lose a game of Monopoly. It’s not as black and white in real life, but it’s still a good idea to view bankruptcy warily. Declaring bankruptcy, while sometimes the best solution for a situation, is one of the worst things you can do for your credit. It’s not something you should take lightly.
What is Bankruptcy?
There are a number of bankruptcies, but the two most common are Chapter 7 and Chapter 13. Chapter 7 liquidates some of your property to pay for some or all of you debt; Chapter 13 reorganizes your debt and requires you to make monthly payments on it for a few years to pay down some or all of it.
A variety of situations can make bankruptcy the best option for you, whether it’s the added stress of alimony payments, a job loss or student loan payments. Bankruptcy does have its limits, however. It does a great job of erasing credit card debt, but it doesn’t do away with child support or alimony. It’s technically possible for bankruptcy to clear out student loans, but it’s very difficult to qualify for that. If you’re considering bankruptcy, just know it’s not a magic wand that fixes everything.
How Does Bankruptcy Affect Credit?
Declaring bankruptcy has serious consequences for your credit. It can drop the score by as much as 200 points, which is significant on a 300-850 scale. The size of the drop depends on your credit beforehand, though it will be substantial regardless. All bankruptcies stay on your credit report for seven years, and a Chapter 7 bankruptcy stays on there for 10.
Credit After Bankruptcy
Bankruptcy represents a huge blow to your credit, but it’s not a deathblow. Make responsible financial decisions, like paying bills on time and keeping your debt low, and you will start to rebuild your credit. Try to avoid the no credit check installment or payday loans as well as the bad credit installment loans online. These have high interest rates and are not the best idea for getting your credit score back to where you want it.
While the bankruptcy will remain on your record for at least seven years, its impact on your credit will diminish over time. When you’re able, you can add new lines of credit, whether through loans or secured credit cards, and build a positive history with them. There is, indeed, life after bankruptcy.
Debt can be an unavoidable part of life for some, and bankruptcy can be the best option in some cases. Make sure you’re aware of the serious effect it can have on your credit, and if you do declare bankruptcy, don’t despair. The damage it causes doesn’t have to be permanent.