How Does Bankruptcy Affect Credit Score?

Bankruptcies always negatively impact your credit report. How big an effect varies? Having more accounts included in your bankruptcy will have a bigger impact than if it’s just one car loan or credit card.

Your credit is rated on what’s called a FICO score, which ranges from a perfect score of 850 to a low of 300 based largely on things lenders see on your credit report: your payment history, debt burden, how long you’ve had credit and the types of credit used. How badly bankruptcy damages your score depends on how high it was in the first place.

According to FICO’s published guidelines, someone with a 680 credit score – considered a good score – would drop between 130 and 150 points into the poor range. Likewise, a 780credit score would drop between 220 and 240 points, also into the poor range (below 580).


situations have two options – resolution and recovery or liquidation.

getting bankruptcy off your credit report shouldn’t be

If you’ve been forced into bankruptcy, you are far from alone. More than 500,000 Americans declared bankruptcy in 2020, some because of the economic fallout from the COVID-19 pandemic, others of the usual difficulty of managing personal finances.

They all have in common: They want to get this financial red flag off their credit reports as soon as possible.

Can this be done? Eventually, but it’s neither quick nor easy.

Assuming that the bankruptcy is legitimate rather than identity theft or a clerical error, it will remain on your credit report for seven to 10 years. However desirable it may seem, getting bankruptcy off your credit report shouldn’t be the overriding concern.

Think of it as one part of repairing your credit and recovering from the financial damage.

BANKRUPTCY VS INSOLVENTRY: – While Insolvency is a situation which arises due to the inability to pay off the debts due to insufficient assets, bankruptcy is a situation wherein an application is made to an authority declaring Insolvency and seeking to be declared bankrupt, which will continue until discharge. ♠ The term insolvency is used for both individuals and organizations. It is known as bankruptcy for individuals, and for corporate, it is called corporate Insolvency. Both refer to a situation when an individual or company cannot pay the debt in the present or near future, and the value of assets held by them is less than a liability. ♠

How to Rebuild Credit After Bankruptcy

There are different ways to improve your credit score after bankruptcy. These include:

  • Don’t make the same mistakes that led to your bankruptcy. Stick to a budget and try to save money to build an emergency fund.
  • Although you don’t want to accrue new debt immediately, you’ll want to show that you’re responsible strategically. Pay all your bills on time. Things like rent and utility payments can be added to your credit report if you ask your landlord or utility company.
  • Get a secured loan. Local banks and credit unions are willing to lend money secured by a deposit into a savings account because the risk is low for them. The gain is high for you if you make on-time payments for the loan. By reporting your timely payments to the credit bureaus, the banks or credit unions will help you improve your FICO score.
  • Get a secured credit card backed by a deposit that you pay upfront. The credit limit on a secured card is usually equal to the deposit you paid. Such cards may have annual fees and high-interest rates, but as long as you make on-time payments, you can use them to improve your credit and become eligible for a better, unsecured card. Make sure they report your timely payments to the credit bureaus. Of course, never put more on the card than you can pay off by the end of the month.
  • As your score rises, you may be able to apply for a car loan or mortgage.
  • Check your credit report on the date that bankruptcy should be removed to ensure the job was done. Also, when reviewing your credit report, dispute any errors you find. Every point counts. You can order your free credit report from each of the three credit reporting companies once a year and also request a free credit report from Experian at any time.
  • If you need additional help, consider credit counselling. Non-profit credit counsellors are experts at helping consumers deal effectively with debt.

Whatever you do, don’t lose hope. Bankruptcy is a difficult process, but it’s a step toward solvency if you handle it right. Look at it as a restart and get to work.