It's no secret that bankruptcy is bad for you financially, but it's not always clear how much it will affect your credit score.
Your credit score is what financial institutions and landlords use to evaluate if it's a good idea to make agreements with you involving money. So knowing how to keep the numbers up is very important.
If you're considering filing bankruptcy or you already have, it's important to know what to expect when it comes to your credit score. It may not be happy news, but not knowing the facts will only make things worse.
- The better your credit, the worse it will be. Declaring bankruptcy will have a significant impact on your FICO score, which is the most common credit rating. But the impact will be felt more if your score was very high to begin with. For people with worse credit before bankruptcy, the drop won't be as large.
- The type of bankruptcy matters. Individuals can file for bankruptcy under Chapter 7 or Chapter 13, although depending on your yearly income you may not have a choice. But if you do, pay attention to the differences because it will impact your life for years to come. Talk to a lawyer about the best choice for you.
- It shows up on your credit report. Regardless of the effect it has on your actual score, the bankruptcy itself will show up on your credit report for a number of years. That means it's available to banks, potential landlords, and any other institution that investigates your credit. Consider that carefully before you decide to file for bankruptcy.
- You'll have to build your credit back up. Your credit score isn't fixed so even though bankruptcy will make it take a hit, you can work your way back to good credit. Paying bills on time, not spending close to your credit limit, and being careful about your credit lines can get your credit back to where it was before the filing.
- It won't last forever. No matter how bad things seem financially right after declaring bankruptcy, remember that time heals all wounds. After a few years you should be able to build your credit score back up and after 7 or 10 years, depending on how you file, the bankruptcy will disappear from your report. It will all be behind you and no one will need to know about it.