Can Bankruptcy Improve Your Credit Score?

July 22, 2011

People in Nashville considering bankruptcy protection are genuinely concerned about their future financial prospects. Aside from fearing the stigma associated with bankruptcy, they shudder at the thought of being turned down for a job or having to wait years for another loan or credit card simply because of their tarnished credit. This article will highlight how a bankruptcy filing may help you improve your credit score.

It is no secret that bankruptcy itself can seriously affect your credit score. At the outset, a bankruptcy filing can lower your score by nearly 200 points. How much it will drop largely depends on the type of debts you have and your prior credit history. For example, if you file bankruptcy while having a 680 credit score, you may suffer a greater reduction than someone with a 490 score. Bankruptcy debtors usually have poor credit scores as they begin the filing process, so the drop in credit score may not feel so significant.

A bankruptcy discharge is akin to a financial reboot because you are starting all over again with a "new" credit history. All of your past obligations are reduced to zero, and it is entirely possible to achieve a strong credit score within two years, compared to the decade or more you would have spent struggling to pay off your past debts.

There are several steps you can take to rehabilitate your credit score. The first option is to open a new credit card account. It may be surprising, but bankruptcy filers are frequently inundated with new credit card offers shortly after filing their cases. The banks understand that you are trying to establish a new, responsible credit profile, and they are more than happy to help. Why? They understand a debtor's plight in establishing a new identity, and these customers are more likely to pay their bills on time (and in full). Having a few months of on-time payments on a secured credit card or low balance card can help build a new history and quickly increase your credit score.

Another way to help your credit is by being listed as an authorized user on another person's charge account. This is especially helpful if the person pays off their balance each month. While you are not obligated to make payments on the account, you can reap the benefits of their responsible credit use.

By taking the right steps, bankruptcy can increase your credit score. For additional information and advice regarding your specific situation, contact an experienced bankruptcy attorney.

Article provided by David F. Cannon
Visit us at www.nashvillebankruptcylaw.com