How Long Does it Take to Restore Your Credit After Bankruptcy?

Some people would rather struggle with debt — perhaps for years — because they believe that filing for bankruptcy will destroy their credit rating. While it is true that bankruptcy has an initial negative impact on your ability to get credit, the long-term effects of bankruptcy are beneficial. Bankruptcy is in fact designed to give you a fresh start financially, and you can start rebuilding your credit almost right away. Most people see notable improvements as little as a year after completing their bankruptcy.

The FICO score (named for the company that developed it) is the most well-known measure of creditworthiness. FICO scores break down into the following ranges:

• 300 to 579 — Poor credit; lenders consider the person a high risk
• 580 to 669 — Below average credit, but lenders often approve loans to people in this range
• 670 to 739 — Good credit; at or slightly above average
• 740 to 799 — Above average credit; lenders view the person as dependable
• 800 or higher — Well above average; lenders consider the person an exceptionally good risk

Upon filing for bankruptcy, your credit score will most likely fall below 580. Your bankruptcy will appear on your credit report for seven years after final discharge if you file for Chapter 7 or 10 years if you file for Chapter 13.

It may sound scary to have the bankruptcy on your report for those lengths of time, but you can repair your credit much faster. One reason is that after bankruptcy, you start with a clean slate. Your debts are gone and you can start rebuilding credit right away.

The key to success in rebuilding credit is to establish and stick to positive habits. If you pay your bills on time and stay out of debt, you’ll see your score rise. A recent study found that 43 percent of people had a credit score of 640 or higher just a year after bankruptcy. Within two years, 65 percent of people had a score above 640. It’s not uncommon for people to be approved for a mortgage less than three years after completing bankruptcy.

Here are some practical tips to start rebuilding credit in the first year after bankruptcy:

• Keep paying student loans, child support and other debts that didn’t get erased in bankruptcy.
• Get a secured credit card and use it. Make your payments on time to establish a pattern of reliability.
• Do not try to open more than one new credit card or loan every six months.
• Talk to a local bank or credit union about getting a credit-builder loan.
• Monitor your credit by requesting copies of your credit reports and making sure all your discharged debts are being reported correctly.

At the Law Offices of Michael Jay Berger in Beverly Hills, we help people use bankruptcy as a tool to rebuild their financial lives. To arrange a free initial consultation at one of our other convenient offices, call us at 310-271-6223 or contact us online anytime.