Immediate Impact on Your Credit Score
Bankruptcy will lead to a significant credit score decrease nearly every time since it is one of the most severe adverse events that can be placed on a credit report. This depends on your starting score and your credit history in general, although most individuals experience a drop that can be considerably above 100 points in the short-term. Lenders consider a bankruptcy a message that previous debts were not being repaid as agreed hence you are labeled as a risky borrower.
How Long Bankruptcy Stays on Your Credit Report
Bankruptcy does not remain on your credit report permanently, although it will persist in several years. Chapter 7 bankruptcy can be reported as long as 10 years of the filing date in many cases, whereas Chapter 13 which has a repayment plan can seem in most cases up to seven years. The effect on your score is the greatest at the beginning and decreases over time as the record gets old and you accumulates new good credit history.
Access to Credit After Bankruptcy
During the months directly following bankruptcy, new credit can be hard to obtain and the ones that are granted are often at an increased interest rate and the terms are stricter. With time though, a few lenders will take the risk of lending you small lines of credit like secured credit cards or high-interest loans to allow you to resume a track record of getting payments on time. With careful usage of these alternatives, your credit profile can gradually reconstruct and your score will increase, despite the presence of the bankruptcy.
Rebuilding Your Score Step by Step
It is possible to start recovering your credit score immediately you start spending money in different ways after bankruptcy. Having all the bills paid punctually, having low balances in credit cards as compared to the limits, and having no new unnecessary debt, are some of the major habits that will indicate to your future lenders that you are less risky. Also, checking your credit reports and challenging any errors on a regular basis is a good way of making sure that your score is based on your current behavior and is not based on any old or wrong information.
Long-Term Outlook for Your Credit Health
Even though, bankruptcy is a grave occurrence, it does not fully ruin your credit potential. A significant number of individuals experience significant improvement in their ratings in one to two years after adopting good financial habits and making regular payments on time. After the bankruptcy finally drops off your credit report, your score may go up further, particularly after you have established a good history of responsible use of credit in the years since your bankruptcy.