What Happens When Bankruptcy Comes Off Your Credit Report?

It can take up to 10 years for a bankruptcy to leave your report, so it will be a momentous day for your credit history when it does happen. However, the joy might be short-lived, because the short-term effect of a bankruptcy leaving a credit report can be a drop in your credit score. Eventually, however, expunging a bankruptcy will improve your financial profile.

Identification

From a purely technical standpoint, when a bankruptcy comes off your report the credit agencies can just no longer report to it to lenders, even though the record still exists in the court house where you filed bankruptcy. This usually benefits your credit score calculation, because bankruptcy is the absolute worst single item that can appear on a credit history.

Potential Score Decrease

A bankruptcy leaving your report could lower your credit score, however, because the credit bureaus do not rate bankrupt borrowers against normal consumers. The bureaus believe it is more fair to compare people in similar financial situations. If you rebuilt your credit history after the bankruptcy, you probably had a high credit score compared to others who also filed bankruptcy. Once the bankruptcy leaves your report, the bureaus rate you against normal consumers again, and you may not score as high in this category.

Getting Credit Again

Any hit to your credit score is likely only temporary. Assuming you do not miss any payments and continue to pay down debt, you have the potential to shoot your credit score into the high 700s and possibly the 800s. While you can have a good credit score with a bankruptcy on file, it usually cannot get past the low 700s, according to Aleksandra Todorova of The Wall Street Journal's Smart Money.

Tip

Depending on your situation, bankruptcy might actually be the best option for your credit score. Heavy debt that you cannot pay and constant missed payments for years could be worst in the long-term for your creditworthiness. Also, you can build a good credit history with bankruptcy on file by opening a new credit account, usually a secured credit card or department store card, to prove to lenders that you learned from your mistakes and can handle credit again.