Credit Life After Bankruptcy

Filing bankruptcy can completely devastate your credit history and make it impossible to acquire financing. But the effects of bankruptcy are repairable. The keys are knowing what steps to take and learning how to make wiser credit decisions after a bankruptcy to help rebuild your score.

Effects on Credit

The effects of a bankruptcy on credit are severe. Once a bankruptcy court grants your bankruptcy and erases your debt obligations, this information appears on your personal credit report. And with this information on your file, you can anticipate a 100 point, or more, drop in your personal credit score. A reduced score makes is harder to get auto loan financing, a mortgage loan and credit cards. Bankruptcies tarnish credit reports for 10 years and this information can also trigger higher interest rates if you are approved for financing.

Benefits of New Credit

Finding a bank to extend credit to you after a bankruptcy can prove challenging, but new credit is key to rebuilding your credit after bankruptcy and repairing your damaged score. Some consumers decide or are forced to keep a few of their debts, such as mortgages, auto loans and student loans, when filing bankruptcy. This decision can put you a step closer to fixing your credit after bankruptcy because these creditors will update your credit report with positive information, as long as you pay the debts as agreed. Starting over and acquiring new credit may involve getting a high-interest-rate credit card or paying a security deposit to get a credit card with a bank. Another option is getting a subprime or high-rate auto loan.

Rebuilding Your Score

Improving credit life after bankruptcy involves more than getting approved for new credit. The way you manage these new accounts is key to repairing credit. Start off on the right foot and always pay these creditors on time each month. Timely bill payments make up 35 percent of your personal score, and this is an effective method for adding points to your credit score. Paying off credit card balances in full each month helps alleviate high debts and contributes to a better score.

Future Outlook

Fixing credit history and scores after bankruptcy is a gradual process and requires consistently good credit habits. As creditors report positive information after a bankruptcy, your credit score will improve and open the door to financing opportunities. For example, mortgage approvals are possible two years after a bankruptcy, and some lenders approve applicants with scores as low as 620. And as your score increases, you will qualify for lower interest rates on credit cards and loans.