Navigating the world of credit can be an overwhelming experience, especially since creditors and credit bureaus don’t divulge much information to people when it’s time to get their credit started. As such, it can be tricky to know how to remove derogatory remarks from your credit report, like late payments on loans or even bankruptcy.
If you find yourself in this situation, with a bankruptcy on your credit report affecting your credit score and looking for a way to remove it, you’ve come to the right place.
In this article, we’re going to explain everything you need to know about bankruptcy, how it affects your credit score, and how to remove it from your credit report. So keep reading to learn everything you need to know about resolving this tricky credit issue.
How Does a Bankruptcy Affect Your Credit Score?
Bankruptcy is defined as a legal process that involves an individual or an enterprise that declares its inability to repay an outstanding debt of any kind.
Essentially, bankruptcy is a situation in which you have no money left to repay your debts. The process is started by the debtor filing a petition which will allow debtors to seize their possessions in place of their debt, and in some cases, it can be a way to wipe the slate clean, so to speak.
Two common types of bankruptcy can be filed for, Chapter 7 and Chapter 13. Chapter 7 bankruptcies discharge most of an individual’s debt without the need for payment, while Chapter 13 establishes a payment plan.
Generally speaking, Chapter 13 bankruptcies will be viewed more favorably by creditors going forward. Both types of bankruptcies are public records.
However, bankruptcy will stay on your credit report for 7 to 10 years after it shows up, which can make getting a car loan, home loan, or even credit cards much trickier in the future. In addition, a bankruptcy on your credit report will make creditors think you can’t be trusted to repay your debts, and this will make them much less likely to lend you money.
Additionally, a bankruptcy on a credit report will lower your credit score in most cases. Unfortunately, many who decide to file for bankruptcy aren’t aware of the extent to which that decision will affect them and their credit, so it’s essential to consider these things before filing.
But just how much could a bankruptcy affect your credit score? Well, according to FICO, your credit score could take a dive of up to 240 points following a bankruptcy.
That’s a big hit to take. The amount your credit score lowers will also be proportional to how high it is before the bankruptcy. For example, a higher starting credit score will take a bigger hit from bankruptcy than a lower score.
This isn’t necessarily the end of the world for your credit, though. Your FICO score is fluid and changes regularly depending on various factors, so with the right plans in place, you could get your credit score back up to a good place. It will just require some hard work and effort on your part.
How To Remove a Bankruptcy from Your Credit Score
Since bankruptcy on your credit report will be a huge red flag to potential creditors while also bringing your credit score down considerably, you’ll want to try to remove it from your credit report as quickly as possible. Here’s what you need to know about removing a bankruptcy from your credit report.
The first misconception about bankruptcy is that it can be removed from your credit report before the legal time allowed by the law. Bankruptcy stays on your credit report from 7 to 10 years, depending on which chapter of bankruptcy was filed.
However, it’s important to note that this only applies to legitimate bankruptcies.
But even though you can’t remove a legitimate bankruptcy from your credit report before the allotted time completely, there are still a few things you could try to reduce the duration that the filing is reported. It’s also possible to remove a bankruptcy filing if an error was made with reporting it or if the debtor is a victim of identity theft.
The first consideration to make is that it’s entirely up to the debtor and credit agencies to remove the bankruptcy from your report. If the legal time required for reporting has passed, you may need to follow up with the debtors or agencies to ensure they’ve removed the mark.
This may involve contacting one or multiple credit agencies. The three main credit agencies responsible for reporting and handling credit reports are Experian, Equifax, and TransUnion.
If the bankruptcy case filed was Chapter 13, it can be removed in 7 years from the filing date instead of 10. This type of bankruptcy will establish a long-term repayment plan, usually 3 to 5 years, in which the debtor repays their debts instead of having them discharged entirely.
This can often be the better option for your credit, and it can be removed sooner than a Chapter 7 bankruptcy. While the credit unions are not required by law to remove the bankruptcy from your credit report until 10 years from the bankruptcy filing date, they can remove Chapter 13’s in 7 years instead.
Another option to remove a bankruptcy from your credit report is to vacate the bankruptcy. This is possible when the debtor decides they no longer need to file for bankruptcy because they have figured out a way to repay their debts without one.
This may be done in certain situations to help the debtor buy themselves some time, such as with a foreclosure. Facing foreclosure, you can file for bankruptcy to give yourself more time to reinstate your mortgage.
However, even after withdrawing the case, the bankruptcy can still show up on your credit report. If this report is not removed automatically, you can contact the credit agencies and dispute the mark.
If they refuse to remove the bankruptcy from your credit report, you can add a statement to your credit report explaining the situation to potential lenders.
Tips To Improve Your Credit After a Bankruptcy
While it is impossible to remove a legitimate bankruptcy from your credit report before the legal time limit, the good news is that there are other ways you can help to reduce its effect on your credit score. Next, we’ll take a look at some ways you can fix your credit and improve your credit score after filing for bankruptcy.
Make Sure There Are No Errors on Your Credit Report
It’s essential to understand what’s on your credit report to see if there are any errors. You can sign up to get a copy of your free credit report at AnnualCreditReport.com.
You should regularly be monitoring your credit report and watching for anything reported erroneously. These negative items could continue to keep your score down. That way, you can catch errors before they have too large an impact on your credit score. This could include things like falsely reported late payments, lines of credit that don’t belong to you, or old debt that has already been paid off.
By removing errors like these, you’ll see an increase in your credit score despite the bankruptcy.
Pay Bills on Time
As discussed in the previous section, the next step is to avoid all late payments as much as possible. Late payments will have a negative impact and further lower your credit score, which is something you don’t want after filing for bankruptcy.
If you can’t afford to pay your entire bill off, at least make the monthly payments. You’ll want to establish good credit history after your bankruptcy. Paying your bills on time re-establishes your history on the right foot.
Pay Down Debt
Despite having filed for bankruptcy, you may find you still have some outstanding debt left that hasn’t been resolved.
If you can make payments on this debt to pay down the total amount owed, this will reflect positively on your credit score. Try to do this as much as you’re able to minimize the effects of the bankruptcy on your credit report.
Avoid Additional Debt
It should be obvious, but the best thing you can do is avoid accruing additional debt after filing for bankruptcy. This includes taking out loans for cars or other large purchases or racking up credit card debt.
Get a Secured Credit Card
Secured credit cards are credit cards that require a refundable security deposit. This means that if you default on your credit card bill, you lose the safety deposit.
A secured credit card is typically only an option for people with low credit who can’t get approved for standard credit cards. But this can be an excellent way to help re-establish your credit after filing for bankruptcy.
Consider a Credit Repair Service
You may also want to consider getting professional help in the form of a credit repair service to assist in cleaning up your credit report.
Credit repair services are teams of legal workers and lawyers who scour their clients’ credit reports for errors and old derogatory marks that should be removed. They challenge the major credit bureaus on your behalf to get items removed, thus helping to clean up and improve your credit score.
The majority of these services will cost you a fee, varying on the extent to which they work on your credit for you. For more in-depth clean-up and credit reports with many negative marks, the fee may be higher.
Simply put, you provide the credit repair agency with your personal information and credit report. They will discuss the plan of action of the individual accounts you would like to fix.
These companies are designed to help individuals with bad credit improve their personal finances by providing an opportunity to get new credit and a higher credit rating through improving your credit score. In addition, they work with the credit bureaus and financial institutions to remove your credit report’s original delinquency date.
A few of the credit repair companies that are said to be the best options for those who wish to remove or reduce the effect of a bankruptcy on their credit report include the following: Credit Saint, Sky Blue Credit Repair, The Credit People, Ovation, and Lexington Law. As some of the best credit repair services available, you can expect competitive pricing and good results.
Credit Repair Service or Fix on Your Own
There are a few pros and cons that come with using a credit repair company, and the same can be said for trying to repair your credit on your own. We’ve put together a list of the pros and cons of each option to help you decide which is best for your unique situation.
Credit Repair Service
Let’s start with the credit repair service pros. By using a credit repair service, you can get the best lawyers and credit experts on your side to help clean up your credit. This can be helpful if you’re not familiar with credit and need help in your dealings with the credit bureaus.
The cons are that you’ll have to pay them a fee. Credit repair services aren’t free, so this may not be the best option for those who don’t have the extra cash to spare. And following a bankruptcy, you may not.
Fixing Your Credit on Your Own
The pros of fixing your credit on your own are that it’s free. You won’t have to pay anyone to advocate on your behalf, as you’ll be doing all the contacting and calling. You’ll also become intimately familiar with the ins and outs of your own credit, including what should and shouldn’t be on your report.
The main con of fixing your own credit is that you have to do it yourself. You may not be as experienced or knowledgeable of the inner workings of credit and the credit bureaus, so you may find it more challenging to make any real progress on your own. It’ll also take up a lot of time and energy to properly clean up your own credit, which you may be short on.
These pros and cons are something to consider when deciding which option is best for your credit repair needs.
A lot goes into maintaining a good credit score and healthy credit report, and many things can quickly ruin this. Bankruptcy is one of the most difficult derogatory marks to recover from and are also one of the most difficult to remove from your credit report before the legal time limit.
By following the tips we’ve outlined above, you should be better equipped to handle the negative effects of a bankruptcy on your credit report while also knowing how to get started on making improvements. Getting a copy of your credit report and reviewing the negative information will help set the path to improving your credit.
While improving your score can be a tedious process and a longer length of time than you would like, continuing to practice good financial habits will pay off in the end.
For more credit tips and information, be sure to check out some of our other articles listed on our site.