Minnesota Bankruptcy Attorneys That Can Help You
A common concern that many have when they consider filing for bankruptcy is the effect it has on their credit score. Bankruptcy can stay on your credit history for as long as 10 years, but most of our clients have a better credit score than before bankruptcy after about 2 years. This is because bankruptcy removes the conditions that cause people to have a bad credit score in the first place.
Bad credit comes from having missed payments, a bad debt to income ratio, and a high utilization rate. Once the bankruptcy is filed, then the negative credit reporting for missed payments or collections stops, and because the debts get marked as having $0 balance, your utilization rate and debt to income ratio also improve. Debt to income increases because a person’s debt goes down, but they keep the same job so they don’t lose income. Your employer is not told about the bankruptcy at all and it is illegal to fire people because of a bankruptcy.
How Bankruptcy Affects Your Credit Score
If you have a high credit score when filing bankruptcy, then the act will hit the score a little harder compared to those with lower credit scores. However, if it has gotten to the point where you are considering bankruptcy, your credit score is likely taking monthly hits as creditors report missed payments and other negative information.
Bankruptcy does indeed serve as a negative mark on your credit score, but it is not permanent. It is a sign that you had your debt discharged, but it will eventually disappear. It is also worth noting that Chapter 7 and Chapter 13 bankruptcy affect your credit equally, so their effect on your credit score is not a deciding factor between the two options.
While bankruptcy is a long-lasting negative mark, the act of filing can actually help your credit score. Bankruptcy discharges your debt, this means those monthly late or missed payments on your debt that affect a credit score negatively are gone. If you take the appropriate steps to improve your credit score after bankruptcy, you will actually end up with a greatly improved credit score by the time bankruptcy disappears from it.
Tips For Improving Your Credit Score After Bankruptcy
While there are many things you can do to improve your credit score after filing for bankruptcy, you may want to keep these tips in mind.
- Promptly Pay Future Debt — All debt payments should be made early or on time. Late payments have a large impact on your credit history.
- Receive a Secured Credit Card — To build good credit, you need credit. After bankruptcy is closed, you will want to apply for a secured credit card. On these cards, you put down a deposit with the credit company, but making payments to the company will improve your credit rating. Be sure to verify that they do report to credit bureaus, however.
- Limit Your Credit Cards — While having a secured credit card is recommended, avoid having too many open lines of credit after bankruptcy lest you fall into the same hole as before.
- Keep Old Credit Accounts — Older credit account can have a positive impact on your credit score. Keep the balance at zero often, but do use them occasionally when you can pay off the balance quickly. This will give your score a nice bump.
- Review Your Credit Reports — If you are looking to improve your credit report after bankruptcy, you will want to monitor it. You will want to check your credit report and report any errors to prevent unnecessary negative marks on your report. Contrary to the popular belief, checking your credit report will not hurt it. Only hard inquiries, like those done for loans, will lower your score a small amount.
Contact Us Today For A Free Bankruptcy Analysis Review
Bankruptcy should not be put off because you are worried about your credit score. Bankruptcy, when put off, is actually more detrimental to your credit. Bankruptcy can serve as a fresh start, and if it is an option for you, you likely could use that fresh start. If you want to begin the bankruptcy process, contact us today to see what Walker & Walker can do to help. We have offices in Brooklyn Park, Minneapolis, St Paul, and Blaine.
