Going through a bankruptcy can be a hugely stressful situation. But while it certainly impacts your credit for some time, it’s comforting to know that this financial event won’t stick with you forever. Find out exactly what to expect in terms of your credit report and score if you’re planning on filing Chapter 7 or Chapter 13 bankruptcy. And if you already have filed for bankruptcy, we’ll share our top tips for starting over on the right foot so you can repair your credit as quickly as possible.
What Happens to Your Credit Right After Bankruptcy?
Once your bankruptcy hits your credit report, your score can drop as much as 200 points. The higher your existing credit score is, the more your score will drop. If you have a lower score, you might not see your score change quite as dramatically — though it will still be significant.
The severity of your bankruptcy also impacts your credit score. The more debt you have discharged, for instance, the more your score could drop. You may want to sign up for a credit monitoring service so you can track exactly where your credit score is headed throughout the recovery process.
How long a bankruptcy stays on your credit report depends on what type you filed. A Chapter 7 stays on your report for 10 years, while a Chapter 13 stays on for just 7 years. Additionally, any financial history leading up to your bankruptcy, such as late payments or loan defaults, only stay on your credit report for 7 years from the time they were added to the report.
Luckily, even though these effects can be devastating, they won’t last forever; in fact, they won’t even last the entire length of time you see that negative bankruptcy entry on your credit report.
How Long Does It Take to Improve Your Credit?
Even if you just went through a bankruptcy, you can start improving your credit score immediately. There are a few different ways you can repair your credit over time, even with such a serious entry. First, don’t rack up any new debt. While it can help your credit score to open new lines of credit, don’t max out any cards or take on high-interest loans.
Instead, keep your credit utilization under 30% to maximize your credit score. Another huge factor in the credit repair process is making bill payments on time each month. Make sure you do this on a regular basis in order to keep your accounts in good standing and start to improve your credit.
How Do You Get New Credit with Such a Bad Credit Score?
There are actually several options for accessing new credit products regardless of your credit score. For example, you could apply for either a secured credit card or credit builder loan soon after your bankruptcy. Since both of those require a security deposit, the credit requirements for approval are minimal. As you continue to fix your credit with on-time payments, you can apply for loans and credit cards with better rates and terms.
You could potentially get into the 700+ range somewhere between four and five years after your bankruptcy, if you make consistently positive financial decisions. If you’re hoping to buy a house in the future, some home loan programs will qualify you after just two years from your bankruptcy. In some cases, you could even qualify after one year.
Can You Dispute a Bankruptcy on Your Credit Report?
Getting a bankruptcy removed from your credit report early is a difficult process. You’ll have the best luck if you can show evidence of a credit error. Find out by requesting a copy of your credit report and scanning it thoroughly for any inaccurate listings, particularly concerning your bankruptcy. If you find something wrong, you can submit a credit dispute directly with the credit bureau. They’ll have 30 days to respond to your request. Depending on your situation, they may simply update the entry or delete it entirely.
Petitioning the credit bureaus can be a long and cumbersome process. If you’d like professional help, consider working with a reputable credit repair firm like Ovation Credit. We provide a Free Credit Repair Consultation and Credit Report Summary with absolutely no obligation. During the call, our team can give you a better idea of the best way to improve your credit, whether it’s related to a bankruptcy or other negative items on your credit report.