Understanding Your Credit Score After Bankruptcy

One of the biggest issues that prevents New Jersey residents from filing for bankruptcy despite facing mountains of debt is the potential credit score ramifications. When you file for bankruptcy, your credit score can sometimes drop by as much as 200 points. At the same time, however, this effect is not permanent; you can take steps to rebuild your credit after bankruptcy and the debt relief that accompanies it. A bankruptcy attorney can help you understand the impact on your credit score after bankruptcy.

Bankruptcy and Your Credit Score

Some people may expect that they will have a higher post-bankruptcy credit score if they have avoided negative entries on their credit report before filing. Of course, many people file for bankruptcy after late fees, escalating interest rates and collector calls have already made their lives extremely difficult. In general, however, a positive payment history before bankruptcy does not significantly lower the effect of bankruptcy. Instead, the presence of the bankruptcy itself is the most significant factor in evaluating your post-bankruptcy credit, especially in the immediate period after filing.

A bankruptcy attorney can provide more information about how bankruptcy will affect your credit. It is well known that Chapter 7 bankruptcy information remains on your credit report for 10 years. However, not all entries related to bankruptcy remain on file for that long. The following items remain on your report for seven years:

• Chapter 13 bankruptcy filings and related public records
• Judgments, tax liens and third-party collections discharged in the bankruptcy
• Credit cards and other lines of credit discharged in bankruptcy

Where Your Credit Score Comes From

FICO credit scores, calculated by the Fair Isaac Company, are used in making credit decisions about car loans, home mortgages and credit cards. These scores can range from 300 to 850, and a score around 720 is considered to be a good credit risk. There are three main credit agencies, Trans Union, Equifax and Experian, that report information for the calculation of this score. These agencies will look at your outstanding debt, bankruptcies, payment history, new credit and the length of your credit history.

Even though bankruptcy information is quite persistent on a credit record, filers won’t be consigned to poor credit throughout that period. A low credit score can have an impact on many areas of life, so it can be in your interest to elevate that rating as soon as possible. Within four or five years after bankruptcy, you may be able to achieve a “good” credit score.

You Can Rebuild Your Credit After Bankruptcy

There are several ways people can begin the process of rebuilding their credit scores after filing for bankruptcy. One of the most common is opening a secured credit card. These credit cards are backed by a cash deposit that you made with the card issuer, so they are in some ways similar to a prepaid or debit card. However, rather than simply depleting the balance, you will be expected to pay the bill each month for your purchases. Because of this, secured credit cards report your payment behavior to credit reporting agencies. This means that they are one of the most effective methods to begin establishing a positive credit history.

Once you begin establishing more positive credit, you could also apply for small personal installment loans. Be sure to always choose options that report to the credit bureaus. Adding positive credit items to your report will begin to bolster your score. Of course, once you begin to open new lines of credit, it’s important to make your payments on time to establish a positive payment history. You should also aim to keep your cards well below your limits as lower balance utilization can be a positive factor when evaluating your credit.

Contact Neuner & Ventura, LLP

If you’re facing mounting debt from credit cards, medical bills, car loans or lines of credit, you may be looking for a solution that can provide some relief. The experienced New Jersey bankruptcy lawyers at Neuner & Ventura offer free consultations to help you better understand your options. Call our Marlton office at 856-596-2828 or use our online form to contact us today.