Yesterday I got an email from a former client. She was concerned. She had received her discharge several months ago and decided to check her credit score. It was 674. She didn’t expect it to be that high so soon after filing. She was writing to ask if that was even possible.
I wasn’t surprised. One of the “secrets” of bankruptcy, is how quickly your credit score can improve after you file bankruptcy. Of course, everyone’s experience will vary, but this recovery is common for many people who file.
The reason is fairly simple. Factors that will lower a credit score are delinquent accounts and an upside down debt-to-credit ratio where you have maxed out your available credit. Most people who file bankruptcy have fallen behind on payments to their creditors and have maxed out their credit limits.
Once a person files bankruptcy, their debt-to-credit ratio obviously drops since they no longer have any debt. All of those delinquent accounts will also now reflect that they have been discharged. In effect, your credit report is wiped clean.
Once someone has gotten their discharge order from the bankruptcy court, they can start to rebuild their credit score. I encourage my clients to find a secured credit card. The card should be used for common purchases, such as groceries and gas, that would normally be paid for out of a checking account. The card should be paid off, every month, on time. This activity will be reported positively to the credit bureaus.
I recently had a conversation with a mortgage broker who encourages people who have recently filed bankruptcy, and are hoping to one day buy a home, to acquire at least three lines of credit. Again, though, these don’t need to be for large amounts to help build your credit score. While you want to build that score, you also want to use solid budgeting and money management strategies to take full advantage of the fresh start that bankruptcy provides.
If you have questions about how bankruptcy can improve your credit score, we hope you’ll come in for a free, no-obligation consultation with an experienced Colorado bankruptcy lawyer. You can schedule an appointment by calling 303.331.3403 or by using our online scheduling system.
More helpful articles: