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November 14, 2019

How to Improve Your Credit Scores After Chapter 7 Bankruptcy


Do you wonder how to improve your credit scores after Chapter 7 bankruptcy? You should understand how a Chapter 7 bankruptcy works. After that, you’ll see that this kind of bankruptcy won’t kill your chances of earning high credit scores at all. With some prudent and frugal moves, you can get back on track towards enjoying high credit scores and better finances.

What Does Chapter 7 Bankruptcy Do?

Chapter 7 actually refers to a simple and common type of bankruptcy. State, jurisdiction, and even individual cases can vary, so please don’t take this is legal advice.

Basically, you’re asked to sell non-exempt assets to discharge as many debts as possible. Generally, you can exempt your home, vehicles, and even most personal possessions. If you have such debts as a home mortgage or even an auto loan, you can probably keep them intact, but of course, you’ll need to turn in the credit cards that probably generated many of your debt problems in the first place.


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How Does Chapter 7 Bankruptcy Effect Credit Scores?

By the time you considered Chapter 7 bankruptcy, your credit scores had probably already dipped pretty low. There’s no one size-fits-all-answer to the question of how Chapter 7 bankruptcy will impact your credit scores. The discharge of many debts may actually begin to improve your credit rating within a few months.

You should know that a Chapter 7 bankruptcy may remain on your overall credit report for as long as a decade, according to FindLaw. At the same time, we’ve seen numerous reports of people who managed to escalate their own credit scores into the fair, good, and even excellent range within a couple of years, despite the bankruptcy on their file.

If you managed to slide through bankruptcy with an intact mortgage or auto loan, you’ll probably have an advantage over people who have to start entirely from scratch. Just make sure you keep paying those bills on time.

What Kind of Credit Scores Can You Expect After Bankruptcy?

To understand what various credit scores mean to future debtors, you can refer to our infographic and explanation of credit score ranges here. As a rule of thumb, poor credit tends to include scores below 620. Scores over 700 generally represent good to excellent credit.

Again, there are no general answers we can give to the question of exact credit standing after bankruptcy. People usually see a modest dip right afterwards but within a few months of having debts discharged, their scores typically climb back up to the pre-bankruptcy level and then begin to exceed it.

How to Improve Your Credit Scores After Chapter 7

Really, you shouldn’t worry too much about your credit scores right after bankruptcy. They probably won’t look pretty, and that’s something you are going to need to handle through more prudent financial choices or simply avoiding whatever bad luck landed you in bankruptcy court in the first place. Just know that things should ease up within a month or so, so you can start taking steps to get back on track.

Rebuilding Your Credit With a Credit Card After Bankruptcy

One way to rebuild your credit is to begin demonstrating that your discharged debt gave you a chance to manage future debts better. One quick way to do that is to obtain a new credit card, keep the balance modest, and make prompt payments. You might ask if you can even get a credit card shortly after Chapter 7 bankruptcy. The good news is that you probably can.

Tough Nickel ran a survey of 261 of its own site visitors to learn how difficult people found it to get a credit card soon after filing bankruptcy:

  • Approved for a credit card after bankruptcy: 59 percent
  • Denied for a credit card after bankruptcy: 13 percent
  • Never applied for various reasons: 26 percent

These results are pretty encouraging. The vast majority of people who applied for credit cards after filing were approved. It’s possible that some of the people who were denied didn’t research the kinds of cards that were likely to accept them.

Your best bet may be a secured card that requires you to put a cash deposit down to use it, but some folks have gotten unsecured cards as well. Just do your research because some finance companies offer a fair deal to people with past financial struggles, but sadly, some prey upon struggling people who have not done their homework.

Commit to Great Financial Habits

The last thing this article should do is make anybody feel worse about bankruptcy. All sorts of hard-working, honest people suffer from health problems, lose their jobs, and encounter the kind of bad luck that tends to make debt mount.

Still, it doesn’t hurt to look at advice from other people who have managed to earn good credit scores within several months after bankruptcy. These include:

  • Don’t let card balances increase over about 25 percent of the maximum allowed. You don’t want credit bureaus to think you’re managing credit poorly or struggling because you’re close to your maximum.
  • Create an emergency fund, so a trip to the dentist or broken down car won’t create a financial emergency. Try to set up automatic deposits to this account, so it keeps growing. These days, your fund should contain at least $1,000, if not more. Many financial advisors suggest keeping enough cash in liquid accounts to tide you over for three to six months in case you hit another rough spot. You can find interest-bearing financial products that are also pretty liquid. Once you’ve stashed away enough in your emergency fund, you can think about long-term savings.
  • Develop a sensible budget to help you live below your means, and stick to it. If you need help getting started, you can find free budgeting worksheets and tips right here on Frugal Pig. Once you comb through your expenses, you’re bound to find plenty of fairly painless ways to cut costs.
  • Of course, you need to pay each and every bill on time. If possible, pay more than the minimum. it takes time, but you need to establish a steady and consistent history of paying off debt and keeping it low.

Yes, There’s a Light at the End of the Bankruptcy Tunnel

We’ve never talked to anybody who was thrilled about filing for bankruptcy. On the other hand, plenty of folks were relieved to catch a good break after a series of bad ones. A bankruptcy may seem painful, but it can also give you a chance to start over with clean credit and a chance to increase your credit scores. To improve your credit after Chapter 7, stick to good financial habits and show credit bureaus you will manage credit better in the future.


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