You may have heard that filing for bankruptcy damages your credit. This statement is misleading and could be preventing you from achieving the credit score you really want.
Managing The Myths
The truth is that missed payments, high debt balances and negative payment histories are the culprit to your bad credit score. When you carry balances that are too high for your approved credit line, miss a payment, or have an extended history of poor payments, your credit score drops. Even a single violation in any one of these areas is enough to drop your score by several points. Add in several years of repeated violations and you have a recipe for credit disaster.
Would you believe it if someone told you that filing for bankruptcy can actually improve your credit score? It’s true. Although a bankruptcy filing is marked as an occurrence on your credit report, it doesn’t actually impede the score itself. It may be a point of concern for future creditors, but your score is actually likely to see improvement. This is because debts are resolved in bankruptcy, leaving your balance at zero or to a lower point that is less than the balance-to-limit ratio you carried prior to filing. A debt discharge erases your missed payment and negative payment history, making it impossible for a future creditor to know how your payments were made in the past.
It is important to note that bankruptcy by itself isn’t going to put you immediately back in the credit game, but it does give you a clean slate to start fresh. Once your debts are resolved and your accounts reflected as new, you do need to begin establishing a positive payment history.