Is Your Credit Score Important After Bankruptcy?
Once you know how bankruptcy can affect your credit score, you'll probably want to know whether your credit score is still important after bankruptcy. The answer is almost certainly for most people. To learn more about ways to rebuild your creditworthiness and increase your credit score, see How to Improve Your Credit Score After Bankruptcy
Why You May Need Your Credit Score in the Future
For many filers, borrowing money again is the last thing on their minds. Owing money that they could not pay back has weighed heavily on them and they do not want to find themselves in that situation ever again. Many vow to live within their means, take out no credit cards, and save for big purchases like appliances and cars.
For others, the thought of living without access to credit is intimidating.
- “What happens the next time I need to buy a car?”
- “What if the air conditioner stops working?”
- “Can I still help my kids borrow for college?”
- “Will I ever be able to buy a home?”
The reality of life, however, means that it is not always possible, practical or even financially wise to avoid credit. Saving for a house, for instance, is impossible for most people. Financially, it may make more sense to purchase a house at a lower interest rate, when you can qualify, because the potential increase in value over time will be more than the interest paid on the debt.
For others, it may be difficult to save for even a less expensive car, or you may need the car to get to the job that will pay for it.
For all of these things, having a ready supply of credit may be better than vowing never to again owe anything to anybody.
The best and most reliable way to rebuild your credit worthiness after bankruptcy is the same way you build it when you’re just starting out in life. You take advantage of a few favorable credit offers, keep the balances low, and pay your minimums or pay off the entire account monthly. Most importantly, you pay your payments on time!
Finding Out Your Credit Score
Before you can work to improve your score, you need to know what it is. Although there are a number of companies that analyze data and produce credit scores, the Fair Isaac Company claims that its FICO score is used by more lending professionals than any other. The FICO score ranges from a low of 300 to a high of 850. 720 is considered a good score.
Some lending institutions will provide the score to you for free when you apply for credit. Some credit repair and credit monitoring services will provide the score to you (or one from a competing company) if you sign up for their paid services. You can also get a credit score by paying for it when you order a credit report from one of the three major credit reporting agencies, Experian, Trans Union and Equifax. Or, you can go directly to the Fair Isaac Company and purchase the FICO score from there.
How Long Does It Take to Regain a Decent Credit Score?
Bankruptcy attorneys often hear from clients that around two years or so after obtaining their bankruptcy discharges, those clients are receiving credit offers with decent. This is a direct reflection of the credit score, which changes as bankruptcy and other negative information ages.
Credit scores improve as negative items are removed and as positive items build. Although the bankruptcy filing appears on the credit report for up to ten years for a Chapter 7 case and up to seven years for a Chapter 13 case, other negative information associated with individual accounts should fall off after seven years. Therefore, if an individual account reports that it was included in the bankruptcy, that negative information will not be reported if it is more than seven years old.
Unfortunately, the fact of the bankruptcy filing will continue to influence the credit score by the very fact that it continues to appear on the credit report, even as negative information on the accounts included in the bankruptcy fall off.
There is good news, however. There are a number of things you can do to help bring your credit score back into an acceptable range. Are you ready to do all you can to improve your score? If so, see How to Improve Your Credit Score After Bankruptcy.