Most consumers considering filing bankruptcy wrongly believe that doing so will wreck their credit score for a decade. Nothing could be further from the truth so long as you take advantage of the fresh start offered by bankruptcy and work to improve your credit score. In fact, most bankruptcy filers find that their score begins to rebound organically after a Chapter 7 bankruptcy discharge. Here’s why.
Financial Problems Sabotage Your Credit Score
When you’re in over your head with debt, your credit score can take a beating. One missed or late payment can send your score plummeting. If you max out credit cards, miss payments continually, and run over your limits, your score can continue to drop every month. Although it’s the first missed payment that drops your score the most, ongoing issues will continue to send it downwards.
When you file Chapter 7 bankruptcy, your credit card debt is gone within months, and that means the constant negative reporting to your credit report stops. That alone is a relief. Most people that file bankruptcy are in a credit score free fall before filing. And for those that muddle on with debt and don’t file bankruptcy will see their scores continue to drop.
Federal Reserve Research Shows Discharge Helps
The Federal Reserve of Philadelphia published research last year that showed before filing Chapter 7 bankruptcy, the average consumer credit score was 538. But by the time discharge was achieved, their score had risen to an average of 620. That’s more than an 80-point increase with no action taken aside from filing bankruptcy and seeing it through to discharge.
From there, the discharge can have an increasingly positive effect on your credit score if you take strategic steps to improve your credit. Aside from filing Chapter 7 and getting a discharge, you must take specific steps to keep your credit score on the right track. But the research clearly shows that filing bankruptcy represents the opportunity for a rapid increase in your credit score.
Don’t Believe the Myth About Bankruptcy and Credit
While it is true that a Chapter 7 bankruptcy will continue to appear on your credit report for up to 10 years, what is not true is that it will continue to drag down your score as long as you’re working to rebuild your credit score. After the initial rebound offered by bankruptcy discharge, you can improve your credit score month after month until it’s as good or better than before your finances went awry.
For those struggling with more debt than they can service, Chapter 7 bankruptcy can offer the fastest and easiest way to get a fresh financial start. Chapter 7 eliminates not only credit card debt but also medical bills, signature loans, and some older income tax obligations. It will not help with secured debt, child support, alimony and, in most cases, student loans. However, the debt relief under Chapter 7 is impressive.
Rebuilding Credit After Bankruptcy Discharge
After the initial jump that most Chapter 7 filers see after discharge, you can start to work on re-establishing your credit proactively. Usually, it’s a secured credit card that will be the place to start. In some cases, you might be able to leap straight to an unsecured card depending on your credit score after bankruptcy. It’s important to sift through offers and find one with fewer costs and preferably, no annual fee.
From there, you can add credit accounts wisely so that your credit score is always improving. By using credit accounts and paying them off in full each month, you will encourage creditors to continually increase your credit lines, which boosts your score as well. To learn more about improving your credit score after bankruptcy, contact Credit Score Keys.
Call 919-495-2365 for a consultation on improving your credit score after bankruptcy, getting new credit, and increasing your lines of credit to boost your score.