Unfortunately, a lot of misinformation surrounds bankruptcy and credit scores. This causes some people to avoid declaring bankruptcy when they should, leading to more problems.
Here is what you should know about the matter:
Your credit score could drop
If you have a generally good credit rating, filing for bankruptcy could harm your credit score. For example, if you have a credit score of 680, it may fall by 130 to 150 points. But if your credit score is better, at 780, you may lose 200 to 240 points. The higher your credit score, the more points you may lose when filing.
Your credit score could increase after filing
A person with a credit score that is already fairly low, in the 400s to 500s may get as much as 50 points more after filing, as bankruptcy can clear negative items on their credit report.
Can you rebuild your credit score?
It’s a myth that bankruptcy permanently damages credit scores. You can start to improve your credit score straight after filing using practical tips, including:
- Getting a secured credit card
- Considering a credit-builder loan
- Using a co-signer
- Making payments consistently
- Building an emergency savings fund
These tips can help you have enough money to meet your needs and increase your credit score simultaneously.
Will the bankruptcy reflect on your credit report?
When you declare bankruptcy, it will show on your credit report for a particular period, depending on the type of bankruptcy you took. However, if you do not declare bankruptcy now and do not come up with a solution to pay off your debts, your credit rating may get much worse. So, taking a temporary hit on your credit score by filing may be the quickest way to a healthy credit score.
Bankruptcy matters can be complicated so it is wise to learn more about your options.