It's no secret that creditors frown upon consumers who declare bankruptcy. While the exact amount of damage will vary from person to person, few people escape the bankruptcy process without enduring a serious hit to their credit score. In the three to five years following their post-bankruptcy debt discharge, most consumers are unable to secure even the most basic forms of credit. Larger unsecured credit facilities may be out of reach for even longer.
Like many folks, you may believe that your credit score will necessarily recover from your bankruptcy filing. Unfortunately, this isn't the case. Your bankruptcy will act as an immediate drag on your credit score, pulling it down by a couple of hundred points as soon as your debts have been discharged. Depending upon the laws in your state, this negative effect may last as long as 10 years.
Once your bankruptcy filing is no longer a matter of public record, your credit score will enjoy a modest bounce. While this may not be enough to substantially lower your interest rates, it may be sufficient to qualify you for new classes of loans or higher spending limits on your existing credit facilities.
Any bump that you do receive from the sealing of your bankruptcy record may be reduced or negated by other negative credit inputs. If your wages continue to be garnished as a result of your bankruptcy, you've defaulted on subsequent loans, or you're subject to a tax lien, your credit score will remain at depressed levels. For this reason, it may be difficult to pinpoint the day that your bankruptcy "dropped off" your credit report.
You can take several steps to accelerate your post-bankruptcy recovery even before you reach the 10-year reporting cutoff. If you're diligent, you may not need to wait with bated breath for your bankruptcy to drop off your record.
First, work to keep your debt-to-income ratio low. Since you won't quality for many new credit products in the immediate aftermath of your bankruptcy, this should be easy. Next, be sure to make timely payments on any credit cards or loans that you are able to secure. For every payment that you make during your monthly grace period, your credit score will tick up by a point or two. Finally, avoid running balances on your loans: Don't use a credit card to buy anything that you can't afford to purchase with cash.