I just finished a survey of people who filed bankruptcy with me three years ago. Here’s one big thing I found out: credit scores three years after bankruptcy are almost the national average.
Right about half of the people who filed bankruptcy with me three years ago have a score above 670. A 670 score is considered “good” by Experian. That’s a little less than the population as a whole, where 60% of people are above that 670 score.
Some people will be surprised that credit scores after bankruptcy are that high.
There’s an urban legend that you have to go for seven years with bad credit after bankruptcy. People tell me all the time they expect to go seven years with bad credit. Other people wonder if there credit score will drop below 400.
Have you heard anything like that? It’s not true.
Besides this survey of people who filed bankruptcy with me, I can point you to two studies by the Federal Reserve. The Federal Reserve Bank of New York found that “the individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy.” And, the Philadelphia Federal Reserve found that people with a before bankruptcy 540 can expect an after bankruptcy credit score of around 620.
Debt settlement scammers, nosy family members, and some financial gurus will want you to think filing bankruptcy ruins your credit. But, none of them will put it in writing, because it’s just not true.
I’m surprised the credit scores after bankruptcy aren’t higher.
I think nearly everybody can get their credit scores above 670 three years after bankruptcy.
I think nearly everybody should have a credit score after bankruptcy above 670 in three years.
The answer is in another question from my survey. My survey asked people if they got a new credit card in the first year after the bankruptcy. And 43% said, “No.” That’s a problem.
People tell me, when we go to the bankruptcy hearing together, “I never want to see another credit card.” But, if you want a good credit score after bankruptcy, you have to.
Bankruptcy freezes your old bad credit, it doesn’t erase it. So you need to build good credit on top of it.
That means you need to go out and get a credit card. (You’ll get some offers in the mail, but you can also internet search ‘credit scores for bad credit.’) Charge gasoline every month; pay it in full every month. In that way, within six months you’ll get several more good offers; use each card once a month and pay them in full. Each week use a different credit card to charge your gasoline, and pay them all in full. You want to get credit cards with higher credit limits, but you want to keep your actual balances low.
Summary What Does it All Mean?
If you are considering bankruptcy, don’t believe the urban legends. Three years after bankruptcy, your credit can be almost as good as new. If you have filed bankruptcy, don’t turn your back on your credit. Carefully build a yourself a good credit score after bankruptcy.