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Bankruptcy FAQ

How long can bankruptcy impact my credit score?

On Behalf of | Sep 1, 2023 | Bankruptcy

While bankruptcy may clear away your debt, credit bureaus take bankruptcy as a sign that you have not been able to handle debt payments and will drop your credit score, perhaps as much as 200 points. However, this may not be permanent by any means.

At some point, your credit can improve, and perhaps sooner than you think. Here is a look at when the effects of bankruptcy on your credit start to diminish.

Types of bankruptcy

The kind of bankruptcy you file can be a factor. Chapter 13 bankruptcy can have a lingering impact for seven years. However, if you have gone through Chapter 7, bankruptcy may leave a negative record on your credit report for up to ten years from the date of your filing.

Chapter 13 may impair credit for less time because you have completed a repayment plan that compensates creditors, at least in part. By contrast, Chapter 7 involves the liquidation of your assets, which lenders and credit card companies usually take as a more troubling sign of your financial situation.

Taking action to improve your credit

The passing of time can cause your credit score to increase, but there are activities you may engage in to improve your credit even further. These include the following:

  • Complete debt payments on time
  • Keep a low credit utilization ratio
  • Maintain low balances
  • Refrain from opening up new credit
  • Do not close old credit accounts

Credit bureaus note responsible financial actions and record them in your record. It may take about two years from the time of your bankruptcy to start to boost your credit, so some patience may be in order. Still, the possibility of a better financial situation could be within your grasp.