Myths about credit scores after bankruptcy

by | May 26, 2021 | Bankruptcy

The consequences of a bankruptcy are many, but people often forget that pursuing this legal step proves beneficial and the chance for a fresh financial start. Yes, there are some things that will affect you after filing for bankruptcy.

You can expect higher interest rates when it comes to borrowing, fewer job opportunities may come your way as employers check on your credit and, of course, you will have a much lower credit score. And regarding that last matter, plenty of myths exist about what happens to your credit score after bankruptcy.

Your score will plummet, but you can recover

By the time you file for bankruptcy, your credit score already is bad. Remember that. Here are some myths regarding your credit score and how it relates to bankruptcy:

Myth No. 1: My credit score will increase after a bankruptcy discharge.

Not so. The only way to improve your credit score is to make regular debt payments. Getting into good financial habits immediately after filing for bankruptcy means that you have begun working on improving your credit score. That is good news. The sooner you start, the sooner you will see results on your credit report.

Myth No. 2: As long as details about the bankruptcy remain on my credit report, I will continue to have poor credit and a poor credit score.

Your credit score will significantly drop after bankruptcy. However, you can build it back up through improved credit management. How can you rebuild your credit? Some ways include paying all debt on time, and by adding new credit through a secured credit card. In time, you will have good credit again.

Myth No. 3: My credit score will not drop significantly after filing for bankruptcy.

Wrong. People with an excellent credit score of at least 780 may see that number plummet 200 to 240 points. And people with a fair credit score of at least 680 may see that number drop 130 to 150 points. Your credit score will be much lower, but now you have every opportunity to boost it back to where it was or even improve it.

After bankruptcy, you and your credit score have only one direction to go, and that is up. You may have fallen on hard luck or made some bad financial choices in the past, but now you have accepted that fact. A bankruptcy marks the first step toward recovery.