It is a common misunderstanding that someone who files for bankruptcy will forever have financial limitations afterward. People delay or decide against filing at all because they think that they won’t be able to buy a house or even use credit cards.
In reality, while bankruptcy does do some short-term damage to your credit score, it can result in better overall financial circumstances in the long run. Your credit score will go down when you file, but the discharge of your unsecured debts can help you balance your budget. Over several years, you can recover the points you lost by filing and may even achieve a better score than before.
When you understand what bankruptcy does to your credit score and how long it stays on your credit report, the idea of seeking a discharge of your unsecured debts may seem less intimidating.
A new bankruptcy will drag down your credit score
There is no question that your bankruptcy will drastically reduce your credit score, often by 200 points or more. However, a successful bankruptcy discharge will remove late payment records and collection accounts from your record. In other words, it replaces multiple negative marks with one notable blemish.
As time passes and you establish a history of responsible credit use, your score will go back up. You can apply the information provided in your mandatory credit/debt education to make better decisions after your bankruptcy.
New lines of credit will be an option after your discharge
The more time that passes after your discharge, the easier it will be for you to qualify for better financing options. Even while your credit score remains quite low, you may qualify for new credit. Credit cards are often available within months of a discharge, although the terms are often less than ideal.
Many people who file for bankruptcy will qualify for larger financing and better terms roughly two years after their discharges. Within five years, better terms on larger loans, like mortgages, will become available. Seven or 10 years after your discharge, the record of your bankruptcy will come off of your credit report and will no longer limit your future credit opportunities.
Learning the basics of bankruptcy can help you feel more confident about taking control of your financial circumstances.