One of the things that people fear the most when filing for bankruptcy is how it will impact your credit score and the ability to use credit. Our society is very dependent upon buying on credit so it can be a huge inconvenience to work on a cash only basis. It is impossible to predict what will specifically happen to your credit score. But the impact to your credit score will be largely based on where your credit stands now and what information is on your credit report.
In 2010, FICO released information about how bankruptcy and other credit mistakes affect your credit score. Using a mock scenario with two different credit profiles, FICO showed a bankruptcy could cost up to 240 points for someone with a 780 credit score and 150 points for someone with a 680 credit score. While the person with the higher credit score loses the most points, in both examples the individual credit scores end up around the same place, 540 and 530. If credit problems have already pulled your score into the 500-range, you have a little less of a credit score to protect.
You might be surprised to see how soon after bankruptcy you begin receiving credit card offers again. If you decide to file bankruptcy, know that your credit isn’t lost forever. Once you’re out of bankruptcy and your finances are back on track, you can focus on rebuilding your credit score. That involves building a positive payment history with new creditors or with any accounts that survived the bankruptcy. Bankruptcy remains on your credit report for up to 10 years, but it impacts your credit less as time passes and as you add positive information to your credit report.
Re Establishing credit after a bankruptcy is an important step to rebuilding your credit score. Getting a secured credit card is one possibility when trying to reestablish credit. A secured credit card requires you to give the credit card company a lump sum of money, which they keep as collateral. You’re then issued a credit card with a limit equal to the collateral you supplied. These cards often come with fees, so review the disclosures and application carefully to make sure you won’t spend more than the card is worth to you. These cards are much easier to get than other credit cards, since the lender takes on no risk in extending you credit. The passage of time alone will increase your score. Plus, as long as your report is filled with nothing but A+ grades, you should have a decent credit score within a few years, and even a good score by the time the bankruptcy drops off your report.