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Bankruptcy and credit scores

Bankruptcy and credit scores

Florida residents contemplating bankruptcy as a last resort for obtaining debt relief may have concerns about how filing for bankruptcy will affect their credit score and credit report. As explains, a Chapter 7 bankruptcy can stay on a credit report for as long as 10 years from the date it is filed, although the discharged debts will disappear about seven years after their activity ceases. A Chapter 13 bankruptcy stays on for seven years from its date of filing or 10 years if the bankruptcy is not completed or discharged.

Both types of bankruptcies negatively impact a person's credit score. For instance, if a consumer's score was 700 or above prior to filing for bankruptcy, it can drop by 200 points or more afterwards. Similarly, a consumer with a credit score of 680 can expect that score to go down by between 130-150 points.

Rebuilding credit

While a person's credit report and credit score are interrelated, the score slowly improves during the time in which the bankruptcy information remains on the credit report. This is because as the debts are discharged under Chapter 7 or repaid under Chapter 13 they are no longer owed and the credit utilization rate; i.e., the amount of debt one owes as compared to the amount of credit one has, consequently decreases. As an example, FICO, the company responsible for credit scoring, predicts that it will take approximately five years for a person with a credit score of 680 prior to filing for bankruptcy to once again reach the 680 level.

One of the best ways to rebuild credit after a bankruptcy is to get a credit builder loan or a secured credit card. Consumers who maintain low debt levels and make payments on time quickly establish a positive new credit history.

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