The impact of bankruptcy on credit score can be significant. The extent and duration of this impact depend on several factors, including the type of bankruptcy filed, your credit history before filing, and your financial behavior post-bankruptcy. Here’s an in-depth look at how bankruptcy can affect your credit score and what you can do to rebuild it over time.
Immediate Impact on Your Credit Score
Bankruptcy typically causes a substantial drop in your credit score. The exact decrease varies but can range from 100 to 200 points or more. The higher your credit score before filing, the more significant the drop will be. For example, someone with a high credit score of 700 or above may see a more dramatic decline than someone whose score was already low. Additionally, bankruptcy will be listed as a public record on your credit report. Chapter 7 bankruptcy remains on your credit report for 10 years from the filing date. Chapter 13 bankruptcy stays on your report for 7 years from the filing date.
Long-Term Impact on Credit
Post-bankruptcy, it may be challenging to obtain new credit, and if you do, it will likely come with higher interest rates and less favorable terms. Initially, you may need to rely on secured credit cards or loans to start rebuilding your credit. Lenders view bankruptcy filers as high-risk borrowers, which results in higher interest rates on any new credit you obtain. This increased cost of credit can make it more expensive to borrow money for several years following your bankruptcy.
Steps to Rebuild Your Credit Post-Bankruptcy
One of the most important first steps after filing for bankruptcy is to develop a realistic budget and stick to it. To provide an extra safeguard, build an emergency fund to help cover any potential unexpected expenses instead of needing to rely on lines of credit. If you do need credit, consider applying for a secured credit card, which requires a cash deposit that serves as your credit limit. Use it responsibly to start rebuilding your credit history. Additionally, credit builder loans are designed to help improve your credit score. The loan amount is held in a savings account, and you make monthly payments until the full amount is paid off.
Be cautious about taking on new debt too soon after bankruptcy. Some people will see bankruptcy as a way to get rid of debt with little to no consequences. However, it can significantly reduce your ability to get loans. You can also only file for a Chapter 7 every 8 years. So try to focus on paying off any remaining debts and maintaining a healthy financial balance. Making payments on time will also help you rebuild your credit.
Seeking Professional Help
While rebuilding your credit score can be a long process, you don’t need to do it alone. Credit counseling agencies can provide valuable advice and resources for managing your finances and rebuilding your credit. Many agencies offer educational programs on budgeting, saving, and credit management. If you need more personalized help, a financial advisor may be the answer for you. A financial advisor can help create a customized plan for rebuilding your credit and achieving your long-term financial goals.
Oklahoma City Bankruptcy Attorneys
Filing for bankruptcy in Oklahoma City can significantly impact your credit score, resulting in a substantial decrease and a challenging period of rebuilding your credit. However, with diligent financial management, responsible credit use, and patience, you can gradually improve your credit score over time. By understanding the effects of bankruptcy and taking steps to rebuild your credit, you can work towards financial recovery. If you’re considering filing or have filed for bankruptcy, our bankruptcy team at OKC Attorneys can help. Call us today at 405-367-8710 or ask a question online.
