Rebuilding Your Credit After Filing Bankruptcy

Some people who file for bankruptcy protection often swear off of ever wanting to rebuild their credit. So, is it important for you to rebuild your credit after you have filed for bankruptcy protection?

Factors contributing to someone's credit score...

Factors that affect your credit score.

Unfortunately, in our society, the answer to this question is unequivocally, yes. It is important for many to rebuild their credit standing after filing bankruptcy if they intend on living a normal life within the United States today.

What Happens to Your Credit After Filing Bankruptcy

Many people really do not understand what happens to credit when things financially go wrong. Credit reporting only works when you are extended any type of credit. If you are not extended credit and pay up front with cash, you credit score is much closer to zero because you have no credit. A credit reporting agency only reports on what credit you have timely paid for and keeps a score of your payment history. Therefore, if you are paying cash for everything, you will not have a credit history to keep a score.

When you file for bankruptcy, this is considered to be a financial move that will effect how you are making payments toward your existing credit. Therefore, a bankruptcy filing can have only as much negative effect on a credit score as allowed by each discharged item. That is why people who have been extended credit but made timely payments until bankruptcy might have a score in the 700s only to see the score drop to the low 600s or high 500s after they have filed. They still have credit, it just may be poor credit.

Your bankruptcy filing remains on your credit report for up to ten years. This fact can tend to make it more difficult to rebuild your credit history.

Why Rebuilding Credit is Important After Filing Bankruptcy

Here are some reasons rebuilding credit is important after you have filed for bankruptcy protection:

  • Ongoing bills like utility bills. Even after bankruptcy, you will need shelter and a place to live. Unless you can afford large deposits, extending you utility service is a way of extending you credit. With good credit, your deposits will be lower or may be waived altogether.

  • Renting property. Many people who have filed bankruptcy have lost their homes to foreclosure. It is very hard to rent property without having good credit. Your rental deposits are often determined by your credit scores, and more and more landlords are checking credit scores prior to renting. It is easier to rent with a good credit history.

  • Needing a loan for certain property. Unless you can save substantial cash, owning a house or a new automobile is out of the question for many people unless they use their credit to borrow the money to purchase the property. Good credit scores can save you thousands of dollars in interest on loans for these types of property. Borrowing money for such property is a time honored part of our society and will continue to be so for years to come.

Can you live without credit in the United States? Yes, but what quality of life you live will be determined by how well you manage your income, especially after having filed for bankruptcy protection.

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