3 Misconceptions of Bankruptcy and How It Affects Your Credit Score

Bankruptcy can be disastrous but just as much to your credit score, affecting it by almost 200 points.

However, there are ways by which you can improve your credit score and this comes from understanding how credit scores impacts bankruptcy.

In order to do this, one must be able to clear certain misconceptions that surround how bankruptcy will impact your credit score in the first place.

So, let’s look at 3 misconceptions about bankruptcy and your credit score:

#1: Having no negative information on your credit report prior to bankruptcy is helpful

On the contrary, better credit management prior to bankruptcy does little or nothing to minimize the damage caused to your credit score. There are two factors that will determine your credit score: the presence of that information on your credit report and the duration since this information first appeared.

#2: All bankruptcy information stays on your credit report for 10 years

This isn’t true. All of them except one which is the public record of a Chapter 7 Bankruptcy remains on your record for this duration. This includes trades lines indicated by “account included in bankruptcy”, third party debts, judgments and tax liens as well as Chapter 13 public record items.

#3: You’ll have a low credit score as long as the bankruptcy stays on your credit report

This isn’t true. If you’re smart and follow a few rules then you can get a score of 700 within 4-5 years. This requires positive credit to offset the negatives of the credit report, on-time payments on all debts and finally, low balances on credit cards.