The decision to file for a Texas bankruptcy can be a difficult one. Unfortunately, filing for Chapter 7 or Chapter 13 may become unavoidable, and people quickly wonder how the bankruptcy will affect their credit score. Surprisingly, the effects of bankruptcy don’t have to be as damaging as you fear. Proper money management can improve your credit score over the long term, making you eligible for competitive rates. But first, it’s important to understand exactly how a bankruptcy affects your credit score.
Understanding Your Credit Score
Those with high credit scores may see a dramatic drop after filing for bankruptcy while those with a mediocre score may only see a modest drop. Regardless of your situation, it is possible to revive your credit after a bankruptcy. Here are seven immediate ways a bankruptcy will affect your credit score:
- 7-10 years. For those who file for a Chapter 7 bankruptcy, the damage can be reflected on your credit score for up to 7 to 10 years. However, by strategically using credit cards to pay specific bills on time, you can improve your credit in the future and see positive effects in as little as 2 or 3 years.
- Improved credit scores. An improved credit score after filing for bankruptcy might sound counterintuitive, but consider the fact that someone who files for bankruptcy likely has a poor credit score to begin with. A poor score is considered 500 points or lower. Once the bankruptcy is discharged and good debt remains on your report, the score may hover above 500. In fact, some people experience their scores rising to 600 within the first year and 700 within two.
- Worse rates. Immediately after filing for bankruptcy, any new credit is likely to have unfavorable terms with high rates, strict payment terms, and yearly fees. Again, however, since bankruptcy provides a clean slate, proving yourself could result in improved credit.