Does Bankruptcy or Delinquency Hurt Your Credit More?

A variety of businesses, such as mortgage lenders, credit card providers and insurance companies, rely on your credit rating to offer you products and services. The lower your credit score, the less likely you are to qualify for the products and services you need. When you cannot pay your creditors and your accounts fall into delinquency or you file for bankruptcy, this information appears on your credit file and adversely affects your credit scores.

Delinquency vs. Bankruptcy

The degree to which any negative item impacts your credit scores depends in part on the other data your credit report carries. As a result, estimating which derogatory notation is more harmful is not always possible. In general, however, one late payment on your credit report hurts your credit score less than filing for bankruptcy.

Because your payment history accounts for up to 35 percent of your credit score, numerous delinquent payments can lower your credit rating more than filing for bankruptcy. If you did not have any delinquent payments within your credit history prior to filing for bankruptcy, a bankruptcy notation can cost you 200 points or more on your credit score.

Time Frame

The Fair Credit Reporting Act prohibits credit bureaus from maintaining information about your past delinquencies once that information is no longer current. Even if your credit report carries numerous delinquencies, those delinquencies disappear after seven years and no longer affect your credit score.

Bankruptcies, however, can remain within the public records section of your credit file for up to 10 years. Thus, even if your past delinquencies caused greater damage to your credit rating than a bankruptcy, the bankruptcy can damage your credit score for a longer period of time.

Total Impact

Both delinquencies and bankruptcy hurt your credit rating more if you have a high credit score when the negative information appears within your report. For example, an individual with a 680 credit score would lose an average of 75 points after one late payment and an average of 140 points after filing for bankruptcy. If the individual's credit rating was 780, however, he would lose an average of 100 points after making a delinquent payment and 230 points after filing for bankruptcy.

Consumer Considerations

While both delinquencies and a bankruptcy petition cause considerable damage to credit scores, your credit scores can recover after you incur negative reports. Both positive and derogatory information have less impact on your credit rating over time. Thus, through positive debt and credit management skills, you can improve your credit rating while waiting for the credit bureaus to remove past delinquencies and bankruptcy records from your credit files.