Declaring bankruptcy can be an extraordinarily useful tool when it comes to discharging debts that you can no longer pay. While the process can be daunting for some, many people ultimately take this route to strengthen their financial security. However, while there are numerous benefits to filing for bankruptcy, that does not mean it does not come with downsides as well. One of the more pressing issues that come with bankruptcy is the negative effect it has on your credit score. Not only will it severely drop your credit score, but it will also adversely affect your ability to take out loans, as well as potential complications with payments for debts unaffected by your bankruptcy.
Although, while the consequences bankruptcy can have on your credit score can last for a lengthy period of time, they are not permanent. There are steps you can take to minimize the damage to your credit score, as well as build it up in the long term. If you are considering filing for bankruptcy, get in touch with a Newburgh bankruptcy lawyer from The Law Office of Michael D. Pinsky, P.C. for more information about your next steps.
How is my credit score affected after bankruptcy?
Perhaps the most immediate effect of bankruptcy on your credit score is how much it will cause it to drop. The higher your score, the more points will likely be taken off of it. Generally, a sliding scale system is used when it comes to the lowering of an individual’s credit rating after filing for bankruptcy. Credit scores between 670 to 850 will receive an average decrease of 200 points, while scores beneath that range can expect an average drop between 130 to 150 points. However, credit scores cannot go lower than 300. Also, if you already have a poor credit score, the decrease in your rating may be less severe since they do not typically drop below 500 after declaring bankruptcy.
It should also be noted that bankruptcy will appear on your credit report. This can result in difficulties when it comes to taking out certain loans, buying a house, renting an apartment, repayment schedules for specific types of loans, and lower credit limits on unsecured credit cards just to name a few. Although, a personal bankruptcy filing will be taken off your credit report depending on the type of bankruptcy. If you declare a Chapter 13 bankruptcy, it will remain on your credit report for seven years, while a Chapter 7 bankruptcy will stay for 10 years.
It is also important to keep in mind that this does not mean that you must wait that long to improve your credit score. After 30 days have passed from your final discharge, most, if not all, of your accounts will be reset to zero. Methods to help rebuild your credit score can include paying loans that were not discharged, obtaining a secured credit card to make small essential purchases, and working towards some type of large loan to diversify your debts within reason.