How Soon Will My Credit Score Improve After Bankruptcy?

In this article, we explain what happens to your credit score after the courts discharge your bankruptcy, how long it takes your credit score to improve, and ways you can improve your credit score after bankruptcy.

If you’re considering bankruptcy or have already filed, consult a skilled bankruptcy attorney. We’ve also provided links to FindLaw articles on related topics at the bottom of the page.

The Short Answer to a Complex Question

While we’ll provide more details about how to rebuild credit after your bankruptcy is complete later in the article, let’s address the question we opened with –  How soon will your credit improve after bankruptcy?

The short answer is that your credit score typically takes 12 to 18 months to bounce back after a bankruptcy filing. If you take the proper steps, most people will see some improvement after one year.

In the 12-18 months following your bankruptcy, your FICO credit report can improve from bad credit (poor credit is traditionally less than 579) back to the fair range (580-669). Of course, this only happens if you change your credit habits.

You will eventually get there if you work to achieve a good credit score immediately after the courts discharge your bankruptcy. If you start acquiring massive debt again in the months following your bankruptcy, this won’t happen.

If you are persistent about improving your credit and accept that it’s a gradual process, you may have a much better credit score within a couple of years of filing bankruptcy.

Bankruptcy Affects People With Good Credit More Than Those with Bad Credit

Some people assume that everybody who files for bankruptcy has terrible credit. That is not the case. Bankruptcy is a financial tool for all debtors, regardless of their credit score.

It makes sense that people with excellent credit would be able to pay their debts. They may have more money in their savings account than people with bad credit. However, that doesn’t mean people with good credit don’t file bankruptcy.

A person’s credit score may dictate the type of bankruptcy they file. For example, if you have a lot of debt that you pay regularly, your Experian score will be high. At the same time, owing a lot of money makes a person more likely to file bankruptcy.

When someone with a high FICO score files for bankruptcy, their score takes a hit. Regardless of which type of bankruptcy you file, the bankruptcy cannot go through until you’ve gone 90 days without paying your creditors. This means that accounts reporting positive activity for years will start to report negative activity.

A person with bad credit already has negative activity on their credit report, and little changes when they decide to file for bankruptcy. Many debtors who opt for Chapter 7 bankruptcy already have accounts in default. Not making payments for three to six months will not impact their credit much.

Just How Much Will Your Credit Score Drop?

One concern many debtors have is that a bankruptcy will have a negative impact on their credit score. While this is unfortunate, it is unavoidable. The question is, how much will your credit score drop?

It’s impossible to say precisely how significantly a bankruptcy will impact your credit score. It depends on several factors, such as:

• The number of accounts you have on your credit report
• The total amount of debt you owe
• Whether you were already behind on your payments before filing for bankruptcy
• The type of bankruptcy you file

With a Chapter 7, the bankruptcy court will discharge all or almost all your debts. Every entry on your Experian, Equifax, or TransUnion credit report will reflect non-payment or a charge-off.

With a Chapter 13 bankruptcy, the trustee and judge approve a monthly payment plan for your open lines of credit, credit cards, loans, etc. Once the judge signs off on your bankruptcy petition, you will start making payments on your debts.

Instead of reflecting non-payment, your credit report will show that you are making payments, albeit under a bankruptcy reorganization.

The chart below shows how much your credit score will likely decrease when you file for bankruptcy:

Will Potential Lenders Know You Filed for Bankruptcy?

One thing that makes bankruptcy so hard is that everyone can see that you filed for it. Your filing is a matter of public record, and the credit bureaus will report it as such. All potential creditors will know your financial situation. The good news is that this does not necessarily mean you won’t be able to secure credit after a bankruptcy.

Your payment history, on-time payments, and recent credit reporting affect how lenders will treat you. Banks may be unwilling to lend you money after right after your bankruptcy. You’ll have to gradually rebuild your credit rating to earn trusts from lenders.

Once you file bankruptcy and businesses see your credit report’s negative information, you may experience difficulty:

• Getting a car loan
• Buying a house or renting an apartment
• Avoiding high-interest rates on financing
• Avoiding low credit limits on unsecured credit cards
• Negotiating student loan repayment schedules
• Facing increased penalties for late payments
• Getting credit utilization for anything but necessities
• Getting large cash deposits
• Getting loans without a qualified co-signer
• Adding authorized users to some credit cards
• Making security deposits and returns of safety deposits

While these are legitimate concerns, there are certain things you can do to improve your chances of receiving credit in the months and years following your bankruptcy discharge.

Will You Be Able To Get Credit After Your Bankruptcy?

The point of filing for bankruptcy is to get a fresh start. This is especially true for people who file a Chapter 7 bankruptcy. Once the judge discharges your bankruptcy, your debt disappears and you’ll have a clean slate.

This doesn’t mean credit card companies will start burying  you in approval letters. At first, you may have to settle for a secured card. Qualifying for one can take a year or so. Once the banks offer you credit cards, you’ll likely have to pay an annual fee and a high interest rate. 

Chapter 13 bankruptcy works a bit differently. Banks will not want to lend you money until they see you’re honoring your Chapter 13 repayment plan. They want proof that you’re serious about repaying your debts.

How To Improve Your Creditworthiness After a Bankruptcy

The last thing you want to do after filing bankruptcy is find yourself in dire financial straits again a few years later. Fortunately, there are steps you can take to improve your credit after your bankruptcy is complete.

Some of the things that can help improve your creditworthiness include:

• Sign up for credit monitoring so you can keep track of your debts and payments
• Pay for a credit report subscription service that will alert you every time your score changes
• Talk to a credit counselor to learn the best way to manage your debt post-bankruptcy

You should also review your credit report periodically after your bankruptcy is over. A free credit score report is available once per year at sites like Annualcreditreport.com. You can also get more detailed reports from the three major credit bureaus – Experian, Equifax, and TransUnion.

What If I Need a Loan or Credit Card Immediately After Bankruptcy?

If you encounter a financial emergency shortly after filing for bankruptcy, your credit options will be limited. Banks will likely be unwilling to extend credit.

There are other options for buying necessities after filing for bankruptcy. Secured credit cards are always an option. You can also apply for credit builder loans or other financing options specially built for people after bankruptcy. As long as you pay your credit cards and loans every month, your credit score will continue to improve, and lenders will be more willing to help you.

In time, you may also qualify for a mortgage. Most mortgage companies provide FHA loans for people with scores of 560-600. Traditional financing options often require a score of 600 or higher. FHA technically allows scores as low as 500 (with a higher down payment), though many lenders set their own higher minimums.

Returning to Good Credit After Bankruptcy

There is life after bankruptcy. In the past, filing for bankruptcy was a last resort for most people. Times have changed, and even people with high salaries and excellent credit scores have had to file for bankruptcy.

Depending on the type of bankruptcy you file, it will stay on your public record as follows:

• Chapter 13 bankruptcy remains as a public record on your credit report for seven years after final discharge
• Chapter 7 bankruptcy will appear for 10 years after final discharge

Having a bankruptcy on your record for between seven to 10 years does not mean it will take you that long to either repair your credit or get out of debt.

The court’s final discharge releases you from personal liability for almost all your debt. Once you have your bankruptcy discharge, you can start to rebuild your credit and make a better financial future for yourself.

How To Build Credit After Bankruptcy

You can start rebuilding your credit score after the bankruptcy stay is over. The stay prevents creditors from taking action against you for unpaid accounts. While bankruptcy will show on your record for seven to 10 years, it will affect you less every year as you improve your credit.

Once you receive the final discharge, you can start rebuilding your credit. It may take time for the discharge to be reported and reflected in your credit files. Either most or all of your accounts will be at a zero balance, and creditors must stop all collection action.

To rebuild your credit score, you should take the following steps:

1. Request three free credit reports and check that the balance is zero. 
2. Go through the credit repair dispute process if any of your old accounts do not reflect a zero balance.
3. Pay student loans or other non-dischargeable debts on time to start rebuilding your credit history.
4. Request a secured credit card if possible. You can often open these with a cash deposit or if you have a personal loan. Use the card for small essential purchases.
5. If you have any remaining credit cards, plan to pay off at least 70% of the balance. Do not open more than one new credit card every six months, and only then if you can afford to make the payments.
6. Work towards a car loan or another large loan to slowly build a diverse mix of reasonable debts.

By following these short- and long-term ideas, you should see your credit change in 12 months.

Note: If you file a Chapter 13 bankruptcy, these are still good steps to follow. However, your existing debts will not show a zero balance. Instead, you must make monthly payments to existing creditors per your Chapter 13 repayment plan.

Disclaimer: Bankruptcy laws change frequently. While FindLaw strives to provide readers with the most current information, you should consult a local bankruptcy attorney regarding your bankruptcy petition.

An Experienced Bankruptcy Attorney Can Help

Once the court discharges your bankruptcy, your credit report should reflect either a zero balance in a Chapter 7 or a repayment plan under a Chapter 13. If this isn’t the case, you should speak with a credit repair attorney.

A lawyer can speak with credit reporting agencies, credit card companies, and other lenders regarding your bankruptcy and personal finances. An attorney can also step in if a company does not discharge your debt correctly or if you fall into a credit counseling scam.

A bankruptcy discharge legally stops creditors from harassing you. You have rights if a company is not following the process or respecting your bankruptcy filing.

Related FindLaw Resources

• Can You Legally Remove Bankruptcy From a Credit Report?
• Buying a House After Bankruptcy
• What Happens After Bankruptcy?