Guide to Credit Scores & Bankruptcy: High + Low Scores and More

Bankruptcy has an immediate effect on a debtor’s credit score. The exact drop in points depends on how high their credit score was before they fell behind on debt and filed for bankruptcy.

If you have a higher credit score before bankruptcy, over 700, the drop in points may be more significant than if you had a lower credit score, under 600, as the change should be proportional. A Chapter 7 case may have harsher credit score consequences than a Chapter 13 case. Our lawyers can help minimize the effects of bankruptcy on your credit score when handling your case and set you up for future success in improving your credit score after bankruptcy.

You can call Young, Marr, Mallis & Associates at (215) 701-6519 in Pennsylvania or (609) 755-3115 in New Jersey for your free and confidential case review from our bankruptcy lawyers.

What Happens if You File for Bankruptcy with a Low Credit Score?

The hit your credit score takes when you file for bankruptcy is unavoidable, and so is how long you have to wait until the bankruptcy case is removed from your credit report.

Immediate Drop in Credit Score

Filing for bankruptcy has an immediate effect on the debtor’s credit score, even if it was already low. The actual change in credit score may be less severe if it was already low before you filed, such as under 600 points.

The impact on your credit score is almost immediate after we file the bankruptcy petition, and it doesn’t wait to take effect at the end of your case.

Place on Credit Report

The bankruptcy case gets added to your credit report almost immediately as well. Regardless of what your credit was before you filed, the case could stay on your report for 7 to 10 years from the filing date, depending on the specific chapter you filed.

What Happens if You File for Bankruptcy with a High Credit Score?

Believe it or not, filing for bankruptcy before your credit worsens even further from missed payments and incurred debts can have drawbacks, as filing for bankruptcy with a high credit score has more consequences than filing with a low credit score. It’s important to weigh these considerations with our lawyers before filing a bankruptcy petition.

If you have a high credit score when you file for bankruptcy, around 700 or above, you will experience a more significant drop than if you had a lower credit score, likely exceeding 200 points. The drop will be proportional to the total loss to your credit, which is more drastic if you had a positive credit history up until that point.

There are no other major differences between filing for bankruptcy with a low or high credit score. That said, low or high credit scores can be indicative of other attributes that affect your bankruptcy case, such as your income and the chapter you can file, the type of debts you have, and the amount of debt you have.

Do Chapter 7 and Chapter 13 Bankruptcy Affect Your Credit Score Differently?

The specific bankruptcy chapter you end up filing could affect your credit score differently and determine how long the bankruptcy case remains visible on your credit report.

Initial Score Impact

Chapter 7 bankruptcies may trigger a more substantial drop in credit score than Chapter 13 bankruptcies. A Chapter 7 case is quicker because it involves asset liquidation and yields a fast debt discharge, so it affects your credit score more than Chapter 13, during which debtors consolidate and repay debts over time.

Duration on Credit Report

A Chapter 7 bankruptcy case may stay on your credit report for 10 years, while a Chapter 13 case may stay there for 7, regardless of how high your credit score was before the bankruptcy case.

Time Until Improvement

Although a Chapter 7 case stays on your credit report for longer, you may be able to start rebuilding your credit sooner. These cases typically take 4 to 6 months, while Chapter 13 cases can take 3 to 5 years.

Perception from Lenders

Chapter 7 and Chapter 13 bankruptcies on credit reports are typically perceived differently by creditors and lenders afterward. Chapter 7 filers may receive a more substantial discharge, which can be concerning to future creditors. On the other hand, seeing that you repaid all debts during a Chapter 13 case and followed the repayment plan exactly can give future creditors the confidence they need to open an account with you.

How Can You Minimize the Impact on Your Credit Score When Filing for Bankruptcy?

We can work to minimize the long-term impact on your credit from bankruptcy by setting up a repayment plan you can follow and providing you with useful money management tips.

Follow Repayment Plan

Stop bankruptcy from affecting your credit score even more than it already has by making timely payments during a repayment plan for Chapter 13. In addition to following the repayment plan, you must also stay up to date with all current bills so you don’t incur more debt or further harm your credit. We can organize a repayment plan that’s considerate of your current income and expenses, including debts you owe. That way, you are more likely to follow the repayment plan and not fall further behind.

Monitor Credit Reports

Monitoring credit reports during bankruptcy claims and ensuring they update debts as they are paid and settled is important. That confirms that you have settled the debt and do not currently owe the creditor anything. The debt may remain visible on your credit score, but it will not be reported as unpaid.

Set Yourself Up for Future Success

Set yourself up for future success by taking the mandatory credit counseling courses for debtors before filing for bankruptcy. With our help, make a financial plan you can stick to that considers all your sources of income, expenses, and potential costs.

How Can You Rebuild Your Credit After Bankruptcy?

Rebuilding your credit after bankruptcy is possible, and may happen sooner than you thought possible if you take the right steps.

Don’t Incur Additional Debts

To actively rebuild your credit after bankruptcy, you cannot incur additional debts. Getting into debt again soon after your bankruptcy case will further lower your credit score. If you have to file for bankruptcy again soon after your initial case, you will experience another significant drop. A previous bankruptcy case can affect your eligibility for the automatic stay that stops creditors from harassing you for repayment during the case, and add stress to the entire process.

Get a Secured Credit Card

A secured credit card is a great tool for rebuilding credit after bankruptcy. These credit cards require a deposit, and this deposit determines the credit card limit. Limiting your use of available credit each month and making payments on time can help you rebuild your credit even faster after bankruptcy.

No credit is just as negative as bad credit, so do not be afraid to open a new line of credit after bankruptcy; just make sure you do it responsibly.

Become an Authorized User

Becoming an authorized user on someone else’s credit card, like a spouse or parent, helps you rebuild your credit when you cannot get approved for a credit card on your own after bankruptcy or when interest rates are too high. If the primary cardholder pays the credit card bill on time and consistently, that positively affects your credit as an authorized user.

Implement Money Management Skills

Implement the money management skills you learned from credit counseling courses and our bankruptcy lawyers during your bankruptcy case so that your credit only increases after bankruptcy and doesn’t worsen further. We can help you set up a budget that works for your family and lifestyle, helping you avoid getting into debt and facing bankruptcy again anytime soon.

What Impacts Your Credit Score?

Plenty of factors come together to determine your credit score, and learning more about them sets you on the right path toward rebuilding your credit after bankruptcy.

Payment History

Making timely payments contributes to a positive credit score. Frequently missing payments lowers your credit score and could put you into debt, making filing for bankruptcy almost unavoidable.

Amounts Owed

Your use of credit cards, along with your credit limits and the debts you owe, also affects your overall credit score. Lower utilization ratios are ideal for building credit. Maxing out credit cards and not making payment deadlines or failing to satisfy other debts seriously jeopardizes your credit score before you even file for bankruptcy.

Length of Credit History

A longer credit history contributes to a better credit score. If you only recently established your first line of credit, your credit score might be lower than if you had had accounts longer, even if you have met all payment dates so far. Regularly use accounts to create a solid credit history.

Credit Mix

Having a variety of credit accounts on your credit report also positively affects your credit score. A mix of credit cards and loans only makes your credit score higher if you pay them on time. Having too many lines of credit without meeting payment requirements can seriously harm your credit. It can be hard to have a mix of accounts after bankruptcy, as you might not get approved for loans for some time.

New Credit Inquiries

Every time you try to open a new credit card or another account, a hard inquiry is made on your credit report. This alone can affect your credit score, typically by about 5 to 10 points. Even a slight drop like this can take months of timely payments and regular utilization to erase.

Bankruptcies

Bankruptcy cases significantly affect credit scores, often by 100 points or more. Even after the bankruptcy case is over, it remains listed on your credit report and can be seen by future creditors or lenders for 7 to 10 years. Prior bankruptcies can affect your ability to get approved for new credit cards, mortgages, and other loans. For some, bankruptcy is the only option to settle debts. Rebuilding your credit is possible, so don’t let the drop in your credit score stop you from filing for bankruptcy if you are struggling financially.

FAQs About Your Credit Score and Bankruptcy

Can Your Credit Score Affect Your Ability to File for Bankruptcy?

Your credit score never affects your ability to file for bankruptcy. Bankruptcy affects a credit score, and the extent of the impact depends on the score’s standing at the time of filing.

Does Your Credit Score Dictate the Bankruptcy Chapter You Can File?

Credit score doesn’t dictate which bankruptcy chapter you can or should file; whether Chapter 7 or 13 better suits your situation depends on your income, assets, and the type of debt you have. People with lower incomes don’t automatically have lower credit scores, and vice versa.

Can You Remove Bankruptcy from Your Credit Report Sooner?

You cannot remove a bankruptcy case from your credit report earlier than the mandatory 7 or 10 years it must remain there, unless it is inaccurate.

How Important is Improving Your Credit Score After Bankruptcy?

Improving your credit score after bankruptcy is very important, especially if your credit score dropped substantially and you previously had a positive standing.

How Quickly Can You Improve Your Credit Score After Bankruptcy?

It may take a year or longer to see improvements to your credit score after your bankruptcy case ends. Establishing positive credit habits and money management skills can help you increase your credit score more quickly.

Let Us Help with Your Bankruptcy Case

For help with your case from our chapter 7 bankruptcy lawyers, call Young, Marr, Mallis & Associates at (215) 701-6519 in Pennsylvania or (609) 755-3115 in New Jersey.