How Bankruptcy can Improve a Credit Score

Bankruptcy has a negative effect on your financial standing and it also affects your image as a business or individual. Many individuals get concerned about how the bankruptcy record will affect their credit score. The effect varies from person to person, it depends on how large the debt is and how low your credit score was before filing for bankruptcy. If you had a good credit score before filing for bankruptcy, then your credit score won’t look too bad.

Can I improve my credit score while bankruptcy is listed on my credit report?

It is possible to improve your credit score even when bankruptcy is listed on your credit report. The bankruptcy will be listed on your credit report for 7-10 years. After you have successfully paid all your debts then the bankruptcies will be removed from your credit report. It is true that the bankruptcy listing will affect you until it is removed. You can improve your credit score, by being more responsible with your finances. Using a co-signer to apply for new credit accounts or using a pre-paid debit card that only reports back to three credit bureaus will help you get to that point where you can qualify for a loan.

Bankruptcy can help you start afresh

According to John Ulzheimer, President of Credit Educational Services (A consumer credit  education group), “Your credit report is largely wiped clean when you declare bankruptcy”. What happens in this case is that your balances are removed, and any late payments or records of unpaid debts are also removed from your credit report.

When you file for bankruptcy, your score can be determined by basing on other bankruptcy filers that you are compared to, who fall in the same group as you. According to FICO (Fair Isaac the company). Your score is calculated by comparing your credit standing with that of consumers in a similar financial position with you. This is done in light of making sure that you are treated fairly, rather than being compared to individuals who have perfect credit scores.

This is done by FICO dividing consumers into ten groups called score cards. According to this method, consumers are ranked in each group based on others belonging to the same group. One of the score cards is bankruptcy filers. In such groups you will find individuals with very good credit scores, those with very bad credit scores and those in between. Good credit management after filing for bankruptcy can help you score 700s if you are disciplined and determined to get a good credit score.

Bankruptcy helps an individual to be more aware of their financial decisions more than ever, which means that such a person will be careful no to run into debts again and improve on their spending habits. Bankruptcy is an awakening experience for people who care about their image and how their credit scores look like. It is also a fact that with bankruptcy, you will be listed among bad debtors but with time, if you improve on your credit score your name can be struck off the list of debtors. This will give you more chances of qualifying for loans and credit facilities. You should remember that filing for bankruptcy is not a  financial; death sentence, but can be used as a pedestal to make you a better person when it comes to financial matters.

Bankruptcy can therefore be looked at from a more positive side. Because it can actually teach you how to monitor your credit reports and make sure that you deal with all the negative and erroneous information as soon as it surfaces. You should demand for credit reports from at least three credit bureaus quarterly, to curb and correct any erroneous information, that will ruin your credit report.