How Does Bankruptcy Affect My Credit Standing?
Credit is Possible in Aftermath of Bankruptcy
Declaring bankruptcy doesn't necessarily mean that the door to future credit will be forever closed to you. Although the history of a bankruptcy stays in your credit reporting agency files for ten years, it is possible for you to rebuild your credit in just a few years.
If you take the proper steps after declaring bankruptcy and also manage your credit responsibly, you can rebuild an improved credit reputation in a few years.
Bankruptcy affects the four "C's" of credit
to varying degrees:
CAPACITY
This means that you have sufficient income to afford the payments that would be required on a new loan or credit card account. Your credit capacity is actually improved by bankruptcy because your debts have been reduced.
CAPITAL
This refers to your overall level of wealth. A lender wants to know that you have sufficient financial assets to repay the debt. The impact of bankruptcy on your credit capital will depend on the type of bankruptcy you chose and the type of assets you owned.
COLLATERAL
This refers to your assets that could be or are pledged as security on a debt. Since few assets usually remain after Chapter 7 Bankruptcy, you can build a savings account for use as collateral or take out a loan to buy an item that can serve as collateral on the loan.
CHARACTER
Bankruptcy takes the greatest toll on your credit character. Understandably, lenders will be very cautious in the future about granting credit to you. Over time, with careful financial management, you will be able to rebuild your credit reputation.
Start small to begin rebuilding your credit after bankruptcy:
- Set up a budget that provides for repayment of your remaining debts and the building of assets.
- Keep an existing credit card by reaffirming the debt.
- Get a secured credit card or vehicle loan, but only if it is affordable with a fair contract.
- Do not take on any new debt unless you are absolutely positive that you can
repay it as agreed.