Authored by Lori Godin in Credit Card
Published on 01-13-2009

For many consumers facing high levels of debt, bankruptcy may seem like the only available option. Before declaring bankruptcy, it is crucial that the debtor understand the implications that bankruptcy will have on the credit score.

Although bankruptcy may seem like the best method to rid yourself of debt, no lessons are learned from the lack of required repayment. Although the debts are cleared from the credit file, there are some debts which are not cleared through claiming bankruptcy. To adjust the credit file and begin improving your credit rating it is important to set aside a small amount of money per month which will be allocated towards these debts. After the debts have been repaid this money should be saved, to rebuild the assets that were lost through the bankruptcy process.

Creating a plan for debt repayment teaches the consumer a valuable lesson. Unfortunately, claiming bankruptcy does not allow the customer to learn lessons such as avoiding future debt. Often, customers that declare bankruptcy are at an increased risk to fall into the traps of debt in the future. Therefore, it is crucial for customers to be stringent when it comes to the repayment of debt.

The truth is that bankruptcy can negatively affect the credit score for up to ten years. Bankrupt clients will see this blemish on their credit report for up to seven years, but the implications don’t stop after it has been removed. The process of re4building the credit rating can take years, even after the blemish of bankruptcy has been removed from the credit file. Your FICO score can suffer, as it can be hard to obtain credit, even with a clean slate.

After the bankruptcy declaration has been removed from the credit report, the client needs to re-establish their credit rating through the use of credit. This can be completed through the use of secured credit card, smart credit use and obtaining credit from a variety of sources.

One option for consumers that have declared bankruptcy is secured credit cards. These cards are available to many customers and require a deposit equal to or lesser than the credit line offered to the card holder. This deposit is returned to the customer after the account has been closed or has been in good standing for an extended period of time. Using secured credit cards can be the quickest way to restore a good credit rating after bankruptcy.

The effects of bankruptcy can be seen on the credit rating for years after the time bankruptcy was declared. Building the credit rating is one of the many hurdles that consumers that have declared bankruptcy will face. There is a stigma attached to customers who have declared bankruptcy in the past, which causes these customers to be seen as the most risky.