Don’t let worries about credit affect your decision to file bankruptcy. Find out how a bankruptcy is reported on your credit report and what you can do to build credit after your bankruptcy.

How bankruptcy impacts your credit

Bankruptcy is considered a negative credit event and for most people, filing bankruptcy will decrease their credit score and will initially make it more difficult to qualify for home and auto loans.

The amount of the decrease will depend on a number of factors, such as your overall debt load and whether you file a Chapter 7 or Chapter 13. The average drop in credit is between 160 and 220 points.

A bankruptcy can be reported on your credit report for up to 10 years. After that time, it should drop off. If it doesn’t contact the credit bureaus to have it removed.

3 ways to improve your credit score after bankruptcy

Rebuilding credit takes time, but there are things you can do to start rebuilding your credit right after bankruptcy. You can start by:

  1. Paying your bills on time – Late payments hurt your credit. Paying your bills on time will show that you are responsible and will minimize any negative impact on your credit score.
  2. Do not apply for too many cards ¾ While having a credit card available can be useful in rebuilding your credit, applying for cards can hurt your credit. According to Experian, these will show up on your credit report as an inquiry and will remain on your credit report for two years.
  3. Stick to a budget ¾ During a bankruptcy, you prepare a budget. Try to stick to that budget after the bankruptcy is through. Little things add up quickly and can make it hard to pay bills on time. Sticking to a budget will help you avoid trouble.

Credit is based on a number of factors, including the number of open lines of credit, total available credit and your debt to income ratio. Once you understand how credit is established, you will have the tools you need to rebuild your credit.