Filing for bankruptcy is a viable option for those overwhelmed by debts and in need of relief. Individuals may opt for Chapter 7 or Chapter 13 bankruptcy depending on personal circumstances, but both options will impact your credit score.
While bankruptcy gives you the reprieve you need to get your finances in order, it will also affect your standing in the eyes of lenders and financial institutions for the foreseeable future. Your credit score reflects your financial standing, so it is important to understand how it relates to bankruptcy.
How much will bankruptcy lower your credit score?
Your credit score falls on a scale between the numbers 300 and 850. Experts explain that an average score of around 680 can fall by as many as 150 points as a result of bankruptcy. This is because filing for bankruptcy marks you as someone who requires assistance in handling matters of credit and debt.
How can you raise your credit score after bankruptcy?
Because lenders may consider an individual with a lower credit score to be a risky borrower, it can lead to difficulties in securing a mortgage, financing a car or even opening a new line of credit with your bank. However, you can rebuild your creditworthiness by promptly paying future bills on time. You can also build credit by paying off purchases with a secured credit card that you can easily qualify for by paying an up-front cash deposit.
Filing for bankruptcy can immediately result in a 100 or even 200-point drop in your credit score. However, you can steadily rebuild your credit by acting to prove that you are a reliable borrower going forward.