Filing for bankruptcy sets your credit score back significantly, but you can usually begin to recover within a few months and make meaningful progress within a year. Within two years, your credit score could be even better than before you filed.

However, the road to recovery is long, and there are no guarantees. Your score will increase naturally with time, but the only way to make rapid improvements is to follow an active credit repair strategy.

Here’s what you should know to create and implement one, including the effect bankruptcy has on your credit and the best ways to improve your score afterward.

How Filing for a Bankruptcy Affects Your Credit

Bankruptcy is often synonymous with financial rock bottom in the United States. Many believe it causes your credit score to plummet by hundreds of points and take many years to recover. However, that’s not necessarily the case.

Filing for bankruptcy is a serious setback, but it’s not insurmountable. The consumers who need to utilize it are frequently better off financially after doing so.

Unfortunately, bankruptcy involves admitting that you’re incapable of repaying your debts. Because your credit score represents the chances you’ll meet your obligations, it will decrease significantly after you file.

However, how much it drops depends on your circumstances, including your credit score before bankruptcy, the type of bankruptcy filing, and the nature of any debts you discharge.

Generally, bankruptcy causes higher credit scores to decrease more significantly than lower scores. For example, someone with a 750 credit score will lose more points than someone with a 600 credit score.

In addition, discharging additional or higher debts will cause your score to decrease more. Similarly, Chapter 7 bankruptcy will cost you more points than Chapter 13 since the latter involves paying off a higher portion of what you owe.

Because of the significant impact of filing, you should explore all other types of debt relief before hiring a bankruptcy lawyer, such as credit counseling and debt consolidation.

How Long Does Bankruptcy Stay on My Credit Report?

The time bankruptcy stays on your credit report depends on which type you file. The two most common types of consumer bankruptcy are Chapter 7 and Chapter 13, named for their respective sections in the United States Bankruptcy Code.

Chapter 7 bankruptcy stays on your credit report for 10 years. It involves selling your personal assets and using the funds to pay as much of your outstanding debts as possible.

Generally, there will still be some left, which the bankruptcy court discharges. That makes Chapter 7 a less favorable outcome for creditors. As a result, it hurts your credit score more and stays on your credit report for longer.

Meanwhile, Chapter 13 bankruptcy stays in your credit file for only seven years. Instead of liquidating your property, it involves the creation of a payment plan that you must follow for the next three to five years.

Generally, Chapter 13 bankruptcy pays off more of your debts than you could cover by liquidating your assets. As a result, it’s less damaging to your score and falls off your credit report faster.

How To Build Your Credit After Bankruptcy

Filing bankruptcy is a significant setback to your credit score. However, it’s also a fresh start. When the legal proceedings are over, you should be free of any lingering debts and ready to start rebuilding credit.

It won’t be quick or easy, but you have everything you need to build back better than before. Here are the steps you should follow to improve your credit score as efficiently as possible.

Pay Bills on Time

Fortunately, predicting how your behaviors will affect your credit score is relatively easy. They’re the output of consistent mathematical algorithms, and the variables that go into popular scores are publicly available.

For instance, FICO Score 8 is the most common consumer score among lenders, and the Fair Isaac Corporation (FICO) has shared that your payment history is worth a whopping 35% of it. That easily makes it the most significant factor.

As a result, the best thing you can do to improve your score is to make all your debt payments on time and in full every month. If you want to repair your credit, do whatever it takes to ensure that happens.

Maintain a Good Credit Utilization Ratio

After your payment history, the amount of debt you owe has the second-highest impact on your credit. It’s worth 30% of your FICO score, so it only counts slightly less than paying on time.

Generally, maintaining low, easily manageable debt levels is best for your score. You probably don’t want zero debt, and you definitely don’t want to have anywhere near more than you can handle.

One of the ways lenders gauge the health of your debt levels is by calculating your credit utilization ratio. It equals your outstanding debt balance divided by your credit limit and can apply to individual accounts or all of them together.

For example, a credit card with a $3,000 balance and a $4,000 credit limit would have a 75% utilization ratio. However, that’s much higher than it should be. Ideally, you want to keep your utilization between 1% and 10%.

Get a Credit Builder Loan

One of the most significant roadblocks to improving your credit score after bankruptcy is that you’ll struggle to qualify for accounts that build credit. Unfortunately, you can’t repair your score without them since you need debt to demonstrate your responsibility.

Typically, the best solution is to apply for accounts that are available to people with bad credit. That’s where credit builder loans are incredibly useful.

Credit builder loans function similarly to traditional installment loans, but the provider keeps the loan proceeds as collateral until you pay off the principal balance. As a result, they take minimal risk and can afford to give accounts to people with poor credit.

Credit Strong offers the most customizable consumer credit builder loan available. You get to choose your monthly payment, principal balance, and repayment term since you can cancel anytime without penalty.

Best of all, we don’t need to check your credit score when you apply for an account. Give it a try today!

Get a Secured Credit Card

A credit builder loan is a great start, but it won’t be sufficient to make optimal progress on rebuilding your credit score. You’ll need to use more than one account responsibly to maximize your rate of improvement.

Secured credit cards are one of the most reliable credit-building tools available to people after bankruptcy. To qualify for one, you must provide a cash deposit equal to the credit limit that the card issuer holds onto as collateral.

If you ever default on your account, your bank, credit union, or credit card company can use that deposit to cover its losses. That makes their risk much lower. As a result, you can get a secured card with bad credit.

Get a Mix of Credit Accounts

One of the remaining factors in your credit score is the diversity of your credit mix. It’s worth 10% of your FICO Score 8. While that’s less than the first two, it’s still significant.

To maximize this aspect of your credit rating, you’ll need a healthy number of installment and revolving credit accounts. Installment debts are loans while revolving accounts include credit cards and lines of credit.

If you have a credit builder loan and a secured credit card, you already have one of each type. However, it’s usually best to get one or two more to round out your credit history.

Of course, you shouldn’t borrow money needlessly. Don’t take out a car loan with a high-interest rate just to improve your credit score. If installment debt doesn’t make financial sense, get a credit card instead.

Whichever credit account type you pursue, make sure the lender reports to each major credit bureau. If they don’t share data with the credit bureaus, your efforts won’t improve your score. 

Become an Authorized User

One of the easiest ways to give your credit score a quick boost is to become an authorized user. That lets you borrow against someone else’s credit card and adds its payment history to your credit report.

However, you have no legal responsibility to pay off any of the card’s balances. As a result, its impact on your score is lower than that of a credit card in your name.

While you can pay someone to make you an authorized user, lenders and credit reporting agency leaders frown upon the practice. It’s usually better to ask someone who cares about you personally.

Fortunately, neither of you needs to go through a credit check. They can simply add you to their best credit cards with the most timely payments. Ideally, try to avoid those with even a single late payment.

Regularly Monitor Your Credit Score

If you implement all of the steps in the sections above, you’ll be well on your way to recovering from bankruptcy. It’ll only be a matter of time before you’re back on your feet.

While you rebuild your credit, make sure to keep track of your progress. Fortunately, you receive a free copy of your FICO score every month when you sign up for a credit builder loan from Credit Strong!

Will My Credit Score Improve Once the Bankruptcy Is Gone?

When you file for bankruptcy, the event will remain in your credit reports for either seven or 10 years, depending on the chapter. Once it falls off your credit report for good, your credit score should improve.

However, you don’t have to wait for it to disappear from your credit report to see meaningful improvement in your score. In reality, the effect of your bankruptcy on your credit diminishes as time passes.

It’ll certainly be a red flag to creditors for the first few years, but you can reduce its impact significantly by pursuing an active and intelligent credit repair strategy.

That said, a bankruptcy disappearing from your reports is still something to celebrate. At the very least, prospective creditors won’t see it during the underwriting process, which can also improve your chances of qualifying for financing.

FAQs

How Long Does It Take To Get a 700 Credit Score After Chapter 7 Bankruptcy?

The time it takes to get a 700 credit score after Chapter 7 bankruptcy depends on your score after the proceedings and the steps you take to repair it. If you really work on rebuilding your credit, you can get a 700 credit score within two years.

In fact, you won’t make it to 700 unless you acquire a diverse set of credit accounts and manage them responsibly. The Consumer Financial Protection Bureau once found that the median score 16 years later was still below 700.

How Can I Boost My Credit Score After Bankruptcy?

The best thing you can do to boost your credit score after bankruptcy is to acquire a set of new credit accounts and use them responsibly. It isn’t a quick process, but that’s the only way to generate meaningful improvements.

Your success is contingent on your ability to solve the problems that caused you to go bankrupt in the first place. As a result, you should work on mastering the basics of personal finance before you dive into fixing your credit.

What Is the Average Credit Score After Chapter 7 Bankruptcy?

The average credit score immediately after Chapter 7 bankruptcy is somewhere between 540 and 550. It steadily increases in subsequent years.

Can I Get an 800 Credit Score After Bankruptcy?

Bankruptcy reduces your credit score significantly, and having it in your file can hamper your recovery efforts for years. However, it can’t keep you down forever. Its effects diminish each month, and the event falls off your credit report after seven or 10 years.

As a result, an 800 credit score is still theoretically attainable after bankruptcy. Given enough time, discipline, and planning, you can raise your credit score well past what it was before you filed.

CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.

Start Building credit today