If you or your business is not able to pay the outstanding debts, a legal proceeding is involved that declares bankruptcy. It is the worst possible situation when nobody is ready to give you loans even at high-interest rates. A legal bench critically examines all assets to make sure that a person or company has actually become bankrupt. Generally, petition for bankruptcy is filed by the debtor or creditors for legal declarations. The court evaluates all the assets and uses them to pay the remaining amount partially as much as possible. The main problem stands while rebuilding credit after bankruptcy. The credit score is a kind of goodwill to help in getting financial aid from banks and financing firms. When you file bankruptcy and declared legally, it abruptly lower down the credit score. Scroll down to understand how bankruptcy affects the credit score.
Bankruptcy impacting credit score
VantageScore and FICO scores are two major organizations that decide the credit score of an account with numerical calculations. The cores of both organizations range between 300 to 850. Here are clear figures of both agencies illustrating the statuses of credit scores.
a). Excellent credit: 800+
b). Good credit: 740-799
c). Fair credit: 670-739
d). Poor credit: 580-669
e). Bad credit: <580
a). Excellent credit: 750+
b). Good credit: 700-749
c). Fair credit: 650-699
d). Poor credit: 600-649
e). Bad credit: below 600
When the court declares you bankrupt, it abruptly reduces from 160 to 220 points. The average credit score remains between 690 to 720, if the points reduce by 160 to 220, you will automatically fall in the category of poor or bad credit score. No matter whether you file bankruptcy or not, the credit score will continuously keep on reducing because of the incapability of loan repayment.
How to rebuild credit after bankruptcy
A bad credit score is a primary reason why you can’t get credit anymore from any finance organization. A low credit score in normal circumstances differs from the condition of bankruptcy. In order to rebuild it, we need the assistance of a professional credit repair agency. The follow some important steps to overcome this situation.
Here we are mentioning step wise measures in detail.
- The first thing they examine is your latest credit report to confirm the bankruptcy. Actually, bankruptcy declaration is a better circumstance than delinquent balances and outstanding.
- If you have multiple accounts, there is a hope of rebuilding the credit score. Credit repair agencies suggest regulating the payments of other accounts on time. Some accounts may not be showing in your credit report but it doesn’t mean that they are not going to be reported.
- Try to get a credit card rather than applying for a loan. Getting a loan might be difficult but many credit card companies issue credit cards because you will not be declared bankrupt for the next 7 years. Within this time period, they know how to get back the credited amount. Approach a financing agency to apply for secure credit cards because they are easily issued. The company asks for a security deposit before issuing a secure credit card. If you are making timely payments, the credit card company will turn your credit card into the “unsecured” category. This behavior gradually starts rebuilding your credit score that will reflect in the next credit report.
- Never exceed your credit card limit more than 30% because the excess of spending from credit card portraits a negative image. Consider your credit cards after bankruptcy as a way of rebuilding score rather than a shopping pass.
- Always keep on submitting new credit applications no matter whether they are accepted or rejected. It is a chance of luck because some creditors consider you as a prior case who really need credit and will return it. However, this tactic doesn’t work every time.
- If there is a co-signer, your credit score will improve much faster. A co-signer having a good credit score acts as security assurance. However, remember this fact that late payments from your account will also badly affect the credit score of co-signer.
These are some smart tips for rebuilding credit after bankruptcy steadily. It will take at least 1 year or more to rebuild your goodwill. Have patience and keep your record clean as much as possible.