How Bankruptcy Affects Your Credit and How to Fix It

After a bankruptcy scores on your credit report aren't going to be pretty. Your credit score, or FICO score as it is sometimes referred to, is a reflection of how responsible you have been as a borrower. There are several different factors that go into determining exactly what this important three digit number is. Bankruptcy is one major factor that will do serious damage to your score, and to your ability to borrow money at reasonable terms for quite a while after the bankruptcy filing. 

Understanding Bankruptcy and Credit Scores

Factors that affect your credit score include:

• Your payment history. How responsible have you been with your credit. The bad debts leading up to the bankruptcy will hurt this aspect of your score, and the bankruptcy will also adversely affect it- especially with chapter 7 where debts don't generally get paid at all except with the proceeds from a bankruptcy sale.
• Your debt to credit ratio- This refers to the amount of available credit you have and use. When you file bankruptcy, your cards are closed. This can cause this aspect of your score to take a hit.
• The average age of your credit accounts- Again, the fact that the accounts are closed during bankruptcy can hurt
• Public records and judgments against you- These show up on your report too... and bankruptcy is a judgment that will stay on there for 10 years. 

Right after bankruptcy, the hit your score will take can make it hard to borrow money, or even in some cases to do things like renting an apartment. Fortunately, there are ways to work on fixing your credit. You can:

• Get a secured card. This is a credit card, but with collateral in the form of cash you set aside with the lender. Your credit line is equal to the amount of cash you put into a special account
• Use your secured card each month for very small purchases. Secured cards have a high interest rate and you never want to carry a balance on one- but you can use it each month so that you can start to establish a good history. 
• Pay off the secured card in full every month, on time- These on time payments will begin to pile up on your report, eventually raising your score enough that you can apply for a standard, not-secured card.

Getting Help

Filing bankruptcy is a serious decision with a serious impact on your life. If you are considering bankruptcy, you need to consult with a bankruptcy attorney who can explain your obligations and the implications of the decision to you.