Filing chapter 7 is an effective way of eliminating serious debt, but your credit score after bankruptcy will fall substantially. Not only that, this negative information is held by credit reference agencies for up to 10 years. Don't despair as your bankruptcy credit rating isn't set in stone and can be improved. If this wasn't the case, there would be little incentive to pay your bills punctually in the future.
You could wait 10 years for chapter 7 to drop off your report, but the sensible option is to take proactive steps to rebuild credit after bankruptcy. This will not only improve your chance of gaining credit acceptance, it will also reduce the cost of borrowing money. This recovery won't happen overnight, but your post bankruptcy credit score will improve as you start to manage your credit agreements better.
Fix Credit Report Errors for a Better Credit Score After Bankruptcy
You'd expect the information that is held by Experian, Equifax and TransUnion to be free from mistakes, but this isn't the case. Bankrate.com believe that: "70% of credit reports contain serious errors." This means that if a lender performs a credit search, they may reject your credit card, mortgage or loan application because the information held about you is erroneous.
You have a legal entitlement to a free credit report under the Fair and Accurate Credit Transactions Act from each credit reference agency once each year. You need to make sure that debt included in your bankruptcy agreement isn't continuing to show as being active. You aren't entitled to see your post bankruptcy credit score for free, but you should be able to get this information through a trial offer.
Pay Debt Punctually to Improve Your Bankruptcy Credit Rating
If you want to fix your credit score after bankruptcy, you'll need to pay your debts on time. Each punctual repayment you make helps to expedite the bankruptcy credit repair process. Although the formula used by the Fair Isaac corporation (who devised the FICO score) is a secret, it has become clear that making repayments towards multiple forms of credit is the optimal approach to credit restoration.
The problem that most discharged bankrupts find is that, although they have a form of installment debts (loans, mortgages, car financing), they have eliminated all of their revolving debt. If you are in that position, consider a secured credit card. There are unsecured cards available, but the credit limit is usually just $250. You need to keep your credit utilization figure to below 30% on each card which makes it impractical.
How Long Does Rebuilding Credit After Bankruptcy Take?
Despite what some credit repair services claim, there is no such thing as rapid credit repair after bankruptcy. It is also illegal to get a new credit report into order to get approval for finance. You should correct credit report errors and pay on time for a better bankruptcy credit rating. Although there are no easy fixes, you can improve your credit score after bankruptcy and qualify for low interest loans, mortgages and credit cards approximately two to three years after being discharged.
Sources
"Building a better credit report." Federal Trade Commission (FTC).
"Disputing and correcting errors on a credit report." Bankrate.com.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
Comments