After Seven Years of Filing Chapter 13, How Much Will My Credit Score Go Up?

After seven years of painful waiting, a Chapter 13 bankruptcy finally leaves your credit report, but this could actually drop your score. Some people experience this anomaly because of quirks in the FICO scoring system, but fortunately even if this does happen to you, your score eventually bounces back. Most people see a boost from a Chapter 13 leaving their credit profile.

Potential Drop

The FICO scoring algorithm is really several formulas that rate the likelihood of a certain demographic defaulting on a loan, such as new borrowers. You might have a good score with a bankruptcy on your record because the FICO model compares your borrowing habits to other people with a bankruptcy. Once this item falls off your report, the FICO model puts you in a category of people without bankruptcies, so your payment habits may not appear as strong.

Considerations

Eventually, your score goes up when a bankruptcy is off your report and you manage credit responsibly. At the height of its impact, a bankruptcy might bring down your score by 240 points, according to CNN. If you have no other reportable negative items, like missed payments, you score could go up even more than this.

Timing

The clock starts ticking as soon as you file a bankruptcy motion with the court, not when you finish the Chapter 13 payment plan. Also, some of the accounts included in the bankruptcy may have already left your report, because the credit bureaus use the date of the original delinquency and including an account in a Chapter 13 case does not extend the period the agencies can report it.

Tip

Review your credit report after the bankruptcy leaves your report. All accounts included in the Chapter 13 filing must carry the notation "Included in Chapter 13 Wage Earner Plan" and the creditor cannot continue reporting the account as delinquent once you satisfy the Chapter 13 repayment plan.

You should build credit while the bankruptcy remains on your report -- you can probably enter the 700s again by building good history on new accounts. Try a secured card, which usually has a credit limit equal to your deposit and financing from auto lenders, because they often lower credit standard to meet sales requirements, suggests Aleksandra Todorova of SmartMoney.