Bankruptcy Credit Reporting
By: Marty Courson
There is no better place to educate oneself about the ins-outs of credit reporting than visiting the source itself -- the big credit reporting bureaus. Click here to visit Experian's consumer knowledge center to find out how long different types of information are maintained on a consumer credit report.
As noted from Experian, a bankruptcy stays on a credit report for 10 years for a Chapter 7; 7 years for a Chapter 13. While a bankruptcy will be reflected on your credit report, so too, will prior credit account charge-offs. Bankruptcy has the effect of discharging your personal liability for most debts. It does not "erase" the fact that such debt existed from your credit report. For that purpose, time is the great healer.
However, because a bankruptcy has the effect of getting rid of old debt, judgments and garnishments, a person is generally a better credit risk after filing a bankruptcy. There money is free to use as they see fit after a bankruptcy (and on NEW debt). Because of this, after filing bankruptcy, a person's credit score is often BETTER.
The great myth is that filing bankruptcy will mean you can't get a credit card or a car loan. The reverse is the truth. A person will file bankruptcy and then be blanketed with offers for loans and credit cards.
After six months or so, I recommend that a person get a free credit report at annualcreditreport.com. The status of accounts included in the bankruptcy should be updated to reflect that fact. If accounts are improperly listed on your credit report after bankruptcy, you can contact the credit agencies and have it noted as having been discharged. Improperly characterized old credit accounts can sometimes weigh down your credit score.
One of the best ways is to ratchet up the credit score post bankruptcy is to get a secured credit card and start charging and paying it down each month. Don’t miss a payment though: The bad payment history or default will reflect negatively even if the credit is ultimately paid by relying on the security. Shop around to find a good deal. Wells Fargo has a good card available, but you must wait until a year after your discharge to be eligible. You can check bankrate.com to compare credit cards.
BEWARE: Many companies offer unsecured credit cards for people with a recent bankruptcy (Capital One, Household, First Premier, Orchard, to name a few). These can be VERY expensive credit options, because many of them have: Low credit lines; High interest rates; Up front application, processing, and reservation fees, usually charged to your first statement; High annual or monthly membership fees OR BOTH; A fee for line-of-credit increases. Beware of wolves in sheep’s clothing. Many of the cards charge a hidden fee equal to one-half of the amount of any credit line increases. Thus, a credit line increase of $1,000 may come with a $500 fee! Don’t be fooled by clever marketing. Most of the many credit offers you will receive should be treated like the plague!
Experience has shown that if you refuse credit offers long enough, you may start getting decent credit offers (no annual or maintenance fees) after about 2 years. If you charge smartly and pay the balance off each month, you will start getting better offers at lower interest rates. And your credit score will begin to rise.