How does bankruptcy affect your credit score?

How does bankruptcy affect your credit score?

Most people hold back on declaring bankruptcy due to the effect it has on their credit. It can remain on your report for many years and deter you from applying for loans due to poor credit. Though this is true, if you don’t file for bankruptcy and let your debts go to collections, you can worsen the situation.

A bankruptcy attorney can assist you through the process. They can help you understand chapter 13 vs. 7 bankruptcy. In as much as bankruptcy lowers your credit score, it becomes less crucial over time if you start practicing good financial habits and try to establish new credit after filing. Use the following tactics to improve and manage your credit score after filing for bankruptcy.

Monitor your credit score

You need to monitor your report after filing for bankruptcy closely. Check the lists of debts that are included in the bankruptcy and keep track of their status after the court discharges your debts. Your debts should show a £0 balance if you filed Chapter 7 bankruptcy. Talk to the credit report issuer to make the necessary changes if the report contains inaccurate information. Do not forget to confirm with your original lender.

Try to re-establish credit

We mentioned that bankruptcy remains in your report from 7-10 years depending on the type you file. If your account is not that old, it appears as if you don’t have any credit. After your bankruptcy is discharged, you should, therefore, make sure you apply for credit to help you rebuild your score and re-establish your credit history.

You can do this with the use of secured credit cards or store credit cards. It is easy to qualify for such cards since they come with some few requirements. Beware of the hefty fees and rates associated with them and go through the disclosures before your application. Try applying for a car loan six months after completing the bankruptcy.

Maintain your old accounts

You can boost your credit history by letting your old accounts remain intact and active. Most of the people who declare bankruptcy has good credit before getting into tough financial situations. If this describes you, old items in your report can help your credit score even if you file for bankruptcy.

Avoid applying for multiple accounts

Applying for new accounts can affect a certain percentage of your credit score. In as much as experts advise you to apply for new credit after bankruptcy to rebuild your score, do not open numerous accounts. When applying for a big loan such as a mortgage, ensure you spread out the application over an extended duration. Applying for minimal accounts can also help you manage them effectively to avoid irresponsible financial habits.

Filing for bankruptcy should not be the end of your financial growth. You can still apply for a loan or new credit cards like any other individual. If your credit score is poor due to reduced limits and multiple payments, it is better to file for bankruptcy instead of staying in that situation. Try implementing the strategies above to help you get back on your feet.