Many adults who would benefit from personal bankruptcy delay their filings because of faulty logic. For example, many people worry that their bankruptcy filing will have a devastating impact on their credit score and will prevent them from achieving their financial or professional goals.
After all, not only is good credit necessary for purchasing a home or a vehicle, but it can also play a role in whether you qualify for the best job opportunities. Some employers even do a credit check when deciding who should receive a major promotion.
A bankruptcy on your record will give lenders and employers pause, which is why some people avoid filing for as long as they can. However, the truth is that the multiple credit blemishes caused by debt are likely a bigger issue than a solitary bankruptcy record.
Every debt affects your credit score
From the balance on your credit cards to the medical bill that went to collections, the money that you owe to others will directly influence your credit score. The higher the balance you have on your accounts and the more past-due accounts you have, the lower your score will dip.
Your credit report might potentially show up to seven years of late payments and old accounts that make you look like a financially irresponsible person. Bankruptcy may be a major blemish on your credit report, but it is only one blemish instead of potentially dozens.
What bankruptcy does to your credit score
People often report a triple-digit dip in their credit scores immediately after they file for bankruptcy. However, while their scores will dramatically decline at first, that one bankruptcy record will replace all of the old collection and delinquent account records.
As the month pass following your discharge, your credit score will slowly start to creep up again. Especially if you begin rebuilding your credit quickly with a secured credit card after your discharge, you can rebuild your score to the same point or even a better point by the time your bankruptcy comes off of your credit report.
A few years after your discharge, the single bankruptcy record will have less impact than you might imagine. Seven or 10 years after discharge depending on the kind of bankruptcy filed, creditors and employers will no longer have access to information about your bankruptcy.
Provided that you use it to wipe out your debt and regain control over your budget, bankruptcy may do you far more good than harm for those struggling with debt. Learning more about how bankruptcy works and how to rebuild your credit after bankruptcy will make it easier for you to choose the right financial path.