Some people with money problems view bankruptcy as a devastating failure that forever wrecks their finances and credit rating. In reality, the process can position a person for a fresh financial start and quicker recovery.
The following information shows how a bankruptcy filing can affect one’s credit score and how to rebound from any adverse effects.
Effects on people with low credit scores
Many people who end up in bankruptcy already have a history of missing payments and low credit scores. The number might be in the 500s or 400s, which lenders view as a poor rating.
A low score could see a slight bump from a bankruptcy filing. The reason is bankruptcy can clear away many negative accounts and leave the filing as the only unfavorable remark. However, the jump will not be enough to raise the person to a medium or high credit level.
How bankruptcy affects medium and high scores
Circumstances could push a person with a score in the 600s or 700s into bankruptcy. These individuals can expect to see a substantial dip, even dropping over 200 points after bankruptcy. In short, anyone who files for bankruptcy will likely end up with a score in the 500s or lower.
Though bankruptcy generally leaves a person with a low credit score, the individual can be in a better position to start rebuilding credit after filing. Instead of struggling under the weight of debts with challenging terms, the filer could set up repayment plans or small secured accounts that start creating a positive credit history.