If you file bankruptcy can it help in improving credit score?
Whether or not you should file bankruptcy in itself is a tough thing for you to decide. Now, you will also have to consider the effect of filing bankruptcy on your credit. Bankruptcy, basically has a negative effect on your credit. So, if you file bankruptcy it is not going to directly help you with improving your credit score. But, if you already have bad credit and you are too deep into debt, you can file bankruptcy to get rid of the debts and improve your credit in the long run. You will have to work on your credit score in order to improve it. However, if you are actually planning to file bankruptcy, it would be better for you to take the help of a bankruptcy lawyer.
Bankruptcy and credit score
The credit score is a complex thing as it gets affected by different actions you take and various other things too. In addition, bankruptcy too is equally complex. Mainly, bankruptcy filing has a huge negative effect on your credit. In general, if you file bankruptcy, it lowers the credit score by 200-350 points. But, this actually can vary depending on what your credit score was before filing bankruptcy.
For example, if your credit score is lower than 680, the points by which it is going to lower after bankruptcy filing, is in the range of 130-150. However, if your score is higher than that of 780, the hit may be around 220-250 points or more. So, the fact is that the better your credit score, the higher will be points by which your credit score is going to be hurt.
Now, considering that you already have bad credit, bankruptcy can be considered to be one of your best debt relief options if the other debt help options do not work for you. Though, bankruptcy is going to have a negative effect on your credit, the points by which you will be hurt won’t be great.
But, once you file bankruptcy, depending on the Chapter under which you are going to file, it is supposed to stay on your credit reports for 7 to 10 years. If you file Chapter 13 bankruptcy, it is going to stay on your credit reports for 7 years and if you are going to file Chapter 7 bankruptcy, it is going to stay on your credit report for 10 years.
So, how can bankruptcy help you to improve your credit score? You will be required to work on your credit in order to improve it. In addition, when your debts get paid of, it becomes easier or you to restart your credit building process.
Improving your credit score after bankruptcy
As bankruptcy helps you discharge almost all of your debts, it become easy for you to improve your credit. You can again start from the scratch. You will have to take various steps so as to improve your credit.
Get a secured credit card – Other than maintaining the credit cards which already have had, you can apply for a secured credit card. It is easy to get a secured credit card even with low credit. Keep the usage of the other credit cards low. But use the secure credit card to make most of the purchases. In addition, make the on-time payments on the secured credit card. This is going to help you a lot in improving your credit. However, before taking out a secured credit card, it is important for you to check if the creditor reports to all of the credit bureaus. This is important because, not creditors report to all of the credit bureaus. As a result, even if you make the on-time payments, it is not going to help you with improving your credit in the long run.
Check with your credit reports – After getting the discharge from bankruptcy, you should remember to check your credit reports. As per the bankruptcy rule, the debts that were included in the bankruptcy are supposed to show zero balance and as debt discharged. If the statuses of these debts are showing otherwise, you will have to work on disputing these. Or else, you will never be able to improve your credit score. Rather, the debt situation and your credit can grow worse.
Keep credit usage low or as is affordable – it is important for you to keep your credit usage low as much as possible so that you do not end up in the same situation as before. In addition, if your credit usage grows more than 30% than the available credit limit, it can have further negative effect on your credit score. In general, financial advisors ask borrowers to keep their credit usage as low as possible or at least below 30%. So, in addition to using the secured credit card, you will have to remember that it is important for you to lower the usage of the credit cards and other credit too.
Make on time bill payments – It is important for you to make the on-time bill payments on the existing credit which you have and also on the secured credit card. This helps a lot in improving your credit. Your credit history accounts for 35% of the credit score. This is considered to be the most important part with regards to the compilation of your credit score. So, if you can manage to make the on-time debt payments, this is going to help you with improving your credit score.
Have a lot of patience – Another very important thing that you are required to maintain is your patience. It is extremely important for you to have lots of patience if you would like to see improvements in your credit. The credit score won’t show improvements within a short time span. You will have to go on following the above tips and have patience. With time, your credit score may show improvements.
So, you can see that there are various things that you will be required to do in order to improve your credit. You will have to follow this diligently in order to improve your credit.
Author- Barbara Delinsky
Debt
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