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Rebuilding Credit After Declaring Bankruptcy

Aug. 1, 2017

Dealing with large amounts of debt is a difficult situation. While declaring bankruptcy can be an option to help people move on, many are reluctant to do so.

One reason some people are hesitant to declare bankruptcy is they’re concerned what will happen to their credit. It’s true that there may be a short-term hit to your credit score. The good news is that this is temporary. With the proper actions, people can repair their credit following bankruptcy.

How Credit Scores Are Calculated

To understand how credit is affected by bankruptcy, it’s important to look at the factors that go into determining someone’s credit score. FICO looks at five factors when calculating a credit score. Each factor is given a different weight.

  • Payment history (35%)

  • Amount owed (30%)

  • Length of credit history (15%)

  • New credit (10%)

  • Credit mix (10%)

Bankruptcy falls into the payment history category. Because this is the largest element that contributes to a person’s FICO score, bankruptcy can cause a notable drop in someone’s credit score.

How much someone’s credit score is affected by bankruptcy will vary from person to person. The impact will depend on that person’s overall financial picture. Generally speaking, the higher someone’s credit score is when declaring bankruptcy, the larger the drop they may see.

Repairing Credit Following Bankruptcy

Even though credit scores drop after declaring bankruptcy, it’s important to note that this is only temporary.

In some instances, declaring bankruptcy can be the quickest way to rebuild credit. Rather than continuing to fall deeper in debt, thereby hurting someone’s credit score, declaring bankruptcy allows people to have many of their debts discharged. This allows people to work with a clean slate when rebuilding their credit.

A Chapter 7 bankruptcy typically stays on someone’s credit report for up to 10 years. Even though bankruptcy can stay on someone’s credit report for 10 years, there are still things people can do immediately to start repairing their credit score.

Review your credit reports regularly and check them for accuracy. Everyone is entitled to a free credit report from the three major reporting agencies every 12 months. You can request your free report by visiting

It’s also important to begin paying off bills on time. For people who can’t qualify for a traditional credit card, you may be able to get a secured card. These cards are backed by a deposit made to the issuer. While these cards typically carry an annual fee, they can be a good short-term solution to help boost credit until you’re eligible for a traditional, unsecured card.

While credit scores can be negatively affected, it’s important to remember this isn’t permanent. Understanding the legal options available can help people dealing with debt resolve their financial issues.