Can I Rebuild My Credit Score After Filing For Bankruptcy?[yoast-breadcrumb]
Can I Rebuild My Credit Score After Filing For Bankruptcy?
Filing for bankruptcy can feel like a crushing blow to your finances. Many people worry that declaring bankruptcy will permanently ruin their credit and prevent them from qualifying for loans, credit cards, or other financial products in the future.
The good news is that yes, you can rebuild your credit after bankruptcy. It takes time and discipline, but it is possible to recover and earn back a good credit score. Here’s what you need to know about repairing your credit post-bankruptcy.
How Bankruptcy Impacts Your Credit
When you file for Chapter 7 or Chapter 13 bankruptcy, it immediately shows up on your credit report from the three major credit bureaus – Experian, Equifax, and TransUnion. The bankruptcy filing is usually the first thing any lender will see when they pull your credit history.
Needless to say, this damages your credit score. Exactly how much depends on your previous credit profile, but you can expect your score to drop by anywhere from 130 to 240 points initially after the bankruptcy filing appears on your report .
Bankruptcy also stays on your credit report for 7 to 10 years. The Chapter 7 bankruptcy record will remain for 10 years from the filing date. A Chapter 13 bankruptcy will show for 7 years from the date you filed.
During this time, lenders will see that you declared bankruptcy when they review your credit. This can make it harder to get approved for new credit products.
Steps to Rebuild Your Credit After Bankruptcy
Rebuilding credit after bankruptcy takes time, but it can be done. Here are some steps to take:
- Get a secured credit card – Secured cards require a cash deposit upfront and tend to be easier to qualify for after bankruptcy. Use the card responsibly by paying your balance off in full each month.
- Become an authorized user on someone else’s credit card – Ask a family member or friend with good credit to add you as an authorized user on their account. Their on-time payments will be reflected in your credit history.
- Open a new checking/savings account – Having an active bank account looks better to lenders and shows that you’re managing your finances responsibly.
- Pay all bills on time – On-time payments help boost your credit score so pay every bill by its due date.
- Limit credit inquiries – Each application for new credit results in a hard inquiry on your report, so only apply for credit you truly need.
- Monitor your credit – Review your credit reports regularly and dispute any errors with the credit bureaus.
With consistent, responsible credit behaviors, your score can gradually improve over time. Most people find their credit score rebounds within 12 to 24 months after filing bankruptcy .
When Can I Get a Mortgage After Bankruptcy?
For many filers, a top priority after bankruptcy is becoming eligible for a mortgage again. This allows them to buy a home, which isn’t possible with damaged credit.
Most experts recommend waiting at least 12 to 24 months after your bankruptcy discharge to apply for a mortgage. This gives you time to reestablish credit and show lenders that you can manage debt responsibly again.
It’s also advisable to put down a larger down payment – generally 20% or more of the home’s purchase price. This helps compensate for the higher credit risk mortgage lenders associate with borrowers recently discharged from bankruptcy.
Finally, look into FHA loans or other programs for borrowers rebuilding credit. FHA mortgages only require a 3.5% down payment and have more flexible credit standards . With some time and effort, homeownership is achievable after bankruptcy.
When Can I Get a Credit Card After Bankruptcy?
As mentioned earlier, secured credit cards can be obtained shortly after a bankruptcy filing. These require an upfront security deposit that acts as your credit limit. Making on-time payments helps rebuild your score.
For a regular unsecured card, wait at least 12 to 18 months after your bankruptcy discharge. Look for cards marketed to applicants with poor credit or recent bankruptcies. Subprime cards tend to charge high interest rates and fees, but they report your timely payments to credit bureaus.
You can also ask your bank or credit union about pre-qualification for their cards after your bankruptcy falls off your credit report. Establishing a relationship with them can help your approval odds down the road.
Does Bankruptcy Stay on a Background Check?
Bankruptcy typically does not show up on most standard employment or tenant background checks. These checks look for criminal history, not financial history.
However, bankruptcies are public record. If an employer or landlord runs an in-depth public records search, your bankruptcy filing may appear. But most don’t dig this deep for a routine check.
The exception is jobs requiring a financial security clearance, such as government, banking, or accounting positions. For these roles, expect your bankruptcy to be discovered and scrutinized.
- Bankruptcy damages your credit, but you can rebuild a good score with time.
- Getting a secured card and making on-time payments helps demonstrate you’re creditworthy again.
- Wait 1-2 years after bankruptcy to apply for a mortgage or unsecured credit card.
- Bankruptcy typically isn’t visible on standard background checks – but deep record searches by certain employers may uncover it.
Reestablishing good credit after bankruptcy takes patience, but it’s doable. With financial prudence and responsibility, you can bounce back and achieve your future financial goals.