Your credit report is an important piece of your personal financial landscape. In many cases, this can mean the difference in how successful you will be in obtaining future credit.
Since this report is essentially a record of all your financial actions – the good and the bad, in the case of financial difficulties such as filing for bankruptcy, your credit report will certainly reflect these occurrences.
While in many cases, filing for bankruptcy may be someone’s only option at the time, it is however, important to be aware of how bankruptcy can affect one’s credit report.
Here are 3 ways bankruptcy impacts your credit report.
1) Bankruptcy can Lower Your Credit Score
First and foremost, one of the main ways that filing for bankruptcy will affect your credit report is that is will initially lower you credit score. Not only does it lower your score, it has the potential to lower your score rather significantly. On average, your score can drop as many as 200 points.
To put this into perspective, if a credit score scale ranges from 300 to 900, with higher scores of course being better – if your score plummets from 700 to 500, for example, this is of course a significant and negative change in your credit score. While the exact size of your credit score dip will depend on how your credit was before your bankruptcy filing, it is still likely to decrease anywhere from 130 – 300 points.
As a result, his can make a huge difference for you when you go to apply for more credit. Say, for example, you really need a loan for your car or a mortgage even – with a lower score, this process will certainly be more challenging for you. In the event you can obtain your loan, you may only be eligible for a lower amount and/or a higher interest rate.
In the end, filing for bankruptcy can have many financial implications, such as when dealing with future credit applications.
2) Bankruptcy Information will Stay on Your Credit Report for Several Years
Going through bankruptcy will also impact your credit report for the long term. Due to this specific reality, it is important to be aware of how long certain financial actions (both positive and negative) will remain on your report.
Depending on which type of bankruptcy you have filed, the length of time it remains on your report will differ. All types of bankruptcies will be on your report for as long as 7 years, however, if you have filed for what is known as a Chapter 7 Bankruptcy, it will remain there for 10 years as it is a public record filing.
In this instance, not only will your credit report reflect these actions for the short term, it will impact your report and your credit score for several years. Once again, this will mean that when looking to obtain future credit, you are very likely to be will be met with some more obstacles during this lengthy time frame.
3) After Bankruptcy, your Credit Report will Improve Over Time
Even though your credit score and credit report will reflect the bankruptcy for a certain period of time, the good news is that the negative affects of this filing will start to disappear over time. Even though your report and score have been adversely affected, the level of this impact will fortunately diminish as time goes on.
On the other hand, since your credit score was also likely very depleted prior to filing for bankruptcy, you could even see your credit score start to improve slightly shortly after your bankruptcy is added to your report. This of course has to do with the fact that you are not carrying around your debts anymore – and because your debt-to-credit ratio is now technically in better shape than it was before your filed.
In the end, it is estimated that if your credit score is around 680 before you filed for bankruptcy, then after 5 years your score will once again be back up to that same level. Then after all bankruptcy details have been removed, this will essential be wiped cleaned from your report.
Despite 5 years seeming like a long time before you see drastic improvements, on the bright side of things, at least your credit does have the ability to once again move in an upward direction following bankruptcy.
While bankruptcy may not be a road you ever wanted to go down, it may end up being the best course of action for you at the time. If that is true of your situation, then you will want pay very close attention to the specific implications that bankruptcy will have for you in the beginning as well as over time.
When all is said and done, there is of course, life after bankruptcy. You can start to rebuild your credit afterwards, with the goal of starting to move beyond a bad credit situation once and for all.