The long-term effect that bankruptcy has on a credit report is one of the biggest concerns many individuals express when considering whether or not they should file.
This concern is valid for many reasons. Along with qualifying for new lines of credit and loans, credit reports influence many financial aspects of our lives.
Landlords run credit checks as part of lease applications. Some potential employers require a credit check as part of the application for a new job. Banks along with some cell phone companies use credit reports when opening new accounts. Credit reports may even affect car insurance costs.
Therefore, it is prudent to consider the length of time a bankruptcy case stays on your credit report when deciding whether or not to file a bankruptcy case. However, this should not be the overriding factor used to determine whether you need to file for bankruptcy relief.
There are many ways to rebuild and even improve one’s credit after filing Chapter 7 to take advantage of the fresh start gained by filing a bankruptcy case.
How Bankruptcy Impacts Credit Records
A bankruptcy filing temporarily decreases your credit score. However, the amount of the decrease in your credit rating depends on several factors. For example, late payments, debt collections, and lawsuits impact your credit score.
Many people file bankruptcy after they have struggled to pay debts for months or even years. Therefore, most debtors’ credit scores may already be damaged from late payments or financial hardship.
For these individuals, filing a bankruptcy case might not lower the credit rating very much. However, if someone with relatively good credit files a bankruptcy case, that person may see a larger drop in his or her credit rating. Either way, this decrease is temporary.
How Long A Bankruptcy Will Stay on Your Credit Report
Equifax, Experian and TransUnion are the three major credit reporting agencies that note bankruptcy filings in your credit history. This history is accessible to creditors and other parties who may run credit checks if you choose to apply for a loan or open a line of credit.
Your credit history will include general information about your bankruptcy, such as the case number, the chapter of bankruptcy, and the filing date. In addition, the credit report will indicate when the bankruptcy case was closed.
Choosing between Chapter 7 vs. Chapter 13 bankruptcy will determine the length of time the case remains on your credit report. You cannot do anything to remove the notice of bankruptcy filing from your credit report.
As with other information reflected in your credit history, the bankruptcy filing will eventually “drop off” your credit report.
How Long Does a Chapter 7 Bankruptcy Stay On Your Credit Report?
A Chapter 7 bankruptcy case remains on your credit history for 10 years from the date of filing, even though most Chapter 7 cases are completed within four to six months from the filing date of the bankruptcy petition.
However, you do not need to wait 10 years before you can purchase a new vehicle or home. Most individuals discover that they can rebuild their credit after Chapter 7 within a few years of receiving their bankruptcy discharge.
How Long Does a Chapter 13 Bankruptcy Stay on Your Credit Report?
A Chapter 13 filing will remain on your credit history for seven years from the date you file your bankruptcy petition. However, most repayment plans take five years to complete.
Additionally, the time that Chapter 13 bankruptcy stays on your credit report starts from the date of filing, not when you receive a discharge. Therefore, a Chapter 13 bankruptcy may only remain in your credit history for about two years after your bankruptcy case is closed.
Can I Remove Bankruptcy From My Credit Report Early?
There is no way to remove a bankruptcy from your credit report early. The Fair Credit Reporting Act states that bankruptcy may only be recorded on your credit history for up to ten years.
After that, a bankruptcy filing will automatically drop off your credit report seven to ten years after the filing date, depending on which chapter you file. However, you do not need to wait until a bankruptcy falls off your credit report to begin improving your score.
Rebuilding Credit Scores After Bankruptcy
You can start repairing your credit as soon as your Chapter 7 bankruptcy case is closed. Understanding how a credit score is calculated can also help you improve it after bankruptcy.
Credit score calculations are based on:
- Payment history (35% of your score)
- Amounts owed (30% of your score)
- Length of credit history (15% of your score)
- Credit mix (10% of your score)
- New credit (10% of your score)
Your payment history has the biggest influence on your credit score. Therefore, you need to ensure that all future payments are made on or before the due date. This includes mortgages, rent, car loans, utilities, and all other payments to creditors.
The second largest influence on your credit score is the amount owed. Using more of your available credit can lower your credit rating. Filing a Chapter 7 bankruptcy can help improve this factor by reducing the amount of money you owe.
In the future, try to keep balances on credit cards to no more than 30% of the available credit line to avoid a decrease in your credit rating.
These are some other ways you can improve your credit rating after bankruptcy:
- Obtain copies of your credit reports and review them for mistakes. Immediately report any discrepancies to creditors and each credit reporting agency. By law, you are entitled to free copies of your credit reports from each of the three credit reporting agencies once a year.
- Apply for a secured credit card. Credit card companies require that you place a deposit to obtain a secured credit card. This deposit covers your charges if you do not pay the payments. These cards can help improve your credit score if you make all payments on time. However, ensure the company issuing a secured card reports your information to credit agencies before completing your application.
- If a creditor did not close an old account with a zero balance, keep it open but do not overuse it. This adds to the length of your credit history, which can also improve your score.
- When you are ready to begin using credit again, apply for a small revolving loan, a credit card, and a small consumer loan. A good mix of credit can improve your credit score. However, ensure you can afford the payments. Taking on debt you cannot afford can result in even more financial hardship.
- Create a monthly household budget and hold yourself to it. Maintaining a budget is one of the best ways you can improve your financial well-being and your credit rating after bankruptcy.
Also, beware of credit repair scams after filing Chapter 7. There are less-than-reputable companies that claim they can quickly “fix credit scores” after bankruptcy. However, these companies cannot do anything that you cannot do for yourself. Some may even sell your information or use illegal or unethical methods to boost credit scores.
Considering Bankruptcy As a Debt Relief Option? Get a Free Case Evaluation
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Fill out the form on this page or contact our Fort Worth and Dallas bankruptcy lawyers and discover how filing bankruptcy can help you get out of debt, improve your credit score and ensure your financial well-being.