Can Your Credit Score Go Up After Bankruptcy?

Filing for bankruptcy can be damaging to your credit report, but in certain situations, it can actually improve your chances of getting credit again in the future. While the act of bankruptcy itself can lower your credit score, some people will actually notice an increase in their score after filing for bankruptcy protection.

Credit Score Damage

For those with good credit scores, bankruptcy can be particularly damaging. According to MSN, filing for bankruptcy can lower your credit score by as much as 240 points if you have a credit score of 780 or higher. For those with a credit score of 680, it may only affect your credit score by as much as 150 points. This shows that if you have a lower credit score to begin with, it will do less damage.

Negative Credit Items

Filing for bankruptcy may not affect some consumers because they already have negative items on their credit reports and are simply scraping by. These consumers already have credit problems because they have late payments and high credit account balances. Since these items can already damage your credit, bankruptcy is not likely to do much more additional damage. At that point, your score is already so low that a bankruptcy will not decrease your score much, if at all.

Increased Score

While some consumers notice a decrease in their credit score after filing for bankruptcy, other individuals notice an increase in their scores. This typically happens when large credit balances are wiped out. One of the important factors that is considered when calculating a credit score is the amount of debt that you have in relation to the available credit. If all of your debt is wiped out, this improves your financial ratios and can slightly bump up your score.

Long-Term Help

Over the long-term, filing for bankruptcy can also help your credit score. While it may lower your score temporarily or only result in a slight increase, the long-term implications may be more pronounced. If you have a large amount of debt that you would not be able to pay off on your own, filing for bankruptcy can give you a head start on rebuilding your credit. By using your credit sparingly and making on-time payments, your credit score can be rebuilt.