Bankruptcy has become an option for so many people because of its ability to ease the stress of debt when there may not be another way out. However, a bankruptcy filing can still cause many people to have reservations about the impact it will have and the financial standing it may leave them in. One place where people are most concerned about the effect of bankruptcy is with their credit score.
Bankruptcy and your credit
The fact is, bankruptcy will impact your credit score and how you will appear to potential lenders. Since you may have been dealing with financial difficulties for some time prior to turning to bankruptcy, you may already have a low credit score. Instead of continuing to struggle with debt and making payments on time, you can think of bankruptcy as a fresh start.
Rebuilding your credit
Another concern you may have with bankruptcy is how long it will stay on your credit report. While it is true that it can stay on your credit report for up to ten years, you can begin working on improving your credit score immediately. Since a significant amount of debt you once had is now wiped away with your bankruptcy, you may now have the funds to manage new debt. Your new debt may have high interest rates and stronger terms, but if done responsibly, you can slowly establish a credit history that can raise your credit score.
After you file for bankruptcy, you can improve your credit score and return it to where it was prior to your filing, and possibly higher, by doing the following:
- Know your score and keep following it – As you start establishing your new responsible financial habits, you should consistently watch your credit score for positive progress.
- Check your credit report for errors – Your credit score is based on what is on your credit report. If there are errors on your report, it will hinder your credit score from rising. You can get a free copy of your credit report from each of the companies that monitor your credit, Equifax, Experian and TransUnion.
- Don’t fall behind – Showing that you are responsible financially will be one of the biggest ways to improve your credit score.
- Keep accounts open – One way to make your credit score go up is having available credit to use. If you close accounts, you are eliminating this option to improve your credit score.
If you are concerned about your credit score after bankruptcy, decide if working on raising that score is better in your current position or with a fresh start from bankruptcy. In many cases, the debt many people have has put them in a situation where they will not be able to recover from it unless they choose bankruptcy. You may find the initial hit to your credit score after filing for bankruptcy will be easier to recover from than to continually struggle with overwhelming debt.