Bankruptcy is sometimes a necessary action to protect your finances in the long run. One area where you will take a hit in the immediate future is your credit score.
Many people naturally worry about suffering from poor credit after applying for bankruptcy. For the most part, the pros far outweigh the cons. It is vital to remain cognizant of what will happen to this aspect of your life so you can adequately prepare.
Your score will plummet
There is no other way around it. After bankruptcy, you can expect your credit score to drop significantly. Even if you had an excellent score above 700 before applying for bankruptcy, it will still drop by about 200 points. Even if your credit score is around 680, which is still good, your score will probably drop between 130 and 150 points. Due to this drop, you can expect a much harder time trying to get a loan in the near future.
The impact does diminish over time
Seeing your credit score drop by so much can feel disheartening. Fortunately, things will improve over time. Your bankruptcy will continue to affect your score as long as it remains on your credit report. Its effect will lessen over time. Some people even start to see their scores improve slightly after applying for bankruptcy. The reason this occurs is that you no longer have to pay back the debts because the court discharged them. This improves your credit utilization rate, which is the debt you have carried versus your overall credit limits. In a few years, your credit score can be back where it was.
It will go away in up to 10 years
Filing for Chapter 13 bankruptcy means it will stay on your record for seven years. Chapter 7 remains on your record for 10 years. At this point, it becomes discharged, and you can go about your life with a clear credit score report.