Establishing yourself as credit-worthy is a process that can take many years or even decades for those with a rocky start. Unfortunately, it can take as few as three or four months to utterly destroy your credit rating. A few missed payments, combined with penalty fees and higher interest rates, can leave you in a serious financial predicament. Add in a creditor lawsuit, and your credit won’t get you far.Thankfully, federal bankruptcy protections can allow people who build up too much debt to unburden themselves and hit the financial reset button. Far too many people dismiss the potential benefits of bankruptcy because they believe myths about the process. Most people can keep their home and will have the opportunity to rebuild their credit again.
Some people assume they will never be able to have good credit again, but that doesn’t have to be the case. In reality, bankruptcy does affect your credit rating, but it doesn’t preclude you from rebuilding a positive credit history after your discharge.
You can start rebuilding credit almost immediately
The good news about bankruptcy is that it will free up more of your assets and income to stay on top of payments that really matter, like your mortgage. Once you have finished the bankruptcy process and receive your discharge, it will be possible for you to also begin rebuilding your credit.
Many credit card companies are eager to sign up people who have just received bankruptcy discharge. After all, there are wait periods between bankruptcy filings. In other words, credit cards that work with you right after bankruptcy have very little to worry about in terms of a discharge of those debts.
It is important for those attempting to rebuild their credit to be very careful with how they use credit cards. Only charge what you can pay off the same month and take steps to protect yourself from getting in over your head again. Make sure you understand any fees and policies associated with the new card. Regular use and on-time payments can help you quickly rebuild your credit score after bankruptcy.
Bankruptcy remains on your credit score for seven or 10 years
Depending on the kind of bankruptcy you qualify for, that bankruptcy will be on your credit report for some time. If you qualify for Chapter 7, your bankruptcy discharge will remain on your credit report for a full decade. However, all of your unsecured debts will be discharged, leaving you free from that overwhelming debt and able to start fresh.
Those who file for Chapter 13 bankruptcy, which allows for restructuring of debt, will have the bankruptcy reported on their credit report for seven years. In general, major lenders, like mortgage companies, will begin to consider people for loans again roughly two years after bankruptcy.
The longer you wait before applying for a major loan, the less impact the bankruptcy will have on your credit report. That time will also allow you the opportunity to make on-time monthly payments and build your credit score.