One of the most common questions I get asked is how a bankruptcy interacts and impacts your credit score and credit report. This page is meant to serve as a resource to answer the most common types of questions I receive about bankruptcy and credit reports. If you have questions that aren’t addressed, leave them in the comments below and I’ll try to add them to the list. Enjoy!
Your Credit Report Before Bankruptcy
How do I dispute a debt on your credit report?
Errors in credit reporting can be detrimental to an individual’s financial health and stability. New lines of credit can be denied or offered at inflated interest rates because of incorrect negative information provided by even one of the three credit reporting bureaus. Some experts estimate that one in every four credit reports contains inaccurate information that could stop individuals from obtaining new lines of credit.
The first step to correcting inaccurate or outdated information on your credit report is knowing what creditors are seeing when they pull your information. While you can pay each credit reporting bureau a fee to see your report at any time, federal law requires that each bureau allow you to see your credit report for free once every 12 months. A website has been created to allow individuals to pull all three reports for free. AnnualCreditReport.com is one of the few places you can pull your credit reports without fear of having to pay anything. It is the site recommended by the Federal Trade Commission.
When inaccurate information is found, it must be disputed with each individual credit bureau that is listing it. If, for example, there is incorrect information on all three reports, it must be disputed with all three bureaus separately. If only one credit reporting bureau is showing misinformation, then only that bureau needs to be contacted.
To dispute anything on your credit report, gather any supporting documents you have as evidence. Write a letter to the credit reporting bureau explaining clearly what the inaccuracy is and provide the correct information so that the error can be corrected. The Federal Trade Commission has created a sample dispute letter that can be used as a guide. Attach your supporting documents to the letter to ensure that your complaint is addressed and corrected. We typically encourage folks to send these letters certified mail, return receipt requested, so you have evidence that you properly gave notice of any inaccuracies.
Each of the credit bureaus has set up a page on their websites to allow individuals to file online disputes. Access them here:
Once your complaint has been submitted, the credit reporting bureaus will investigate the inaccuracy, and will usually send a response in the mail no later than 30 days from the day that the dispute was submitted.
If you still are unable to have the improperly listed debt removed then you should contact the Federal Trade Commission to let them know of the improper reporting and the credit bureaus failure to properly remove the inaccuracy.
Does it hurt my credit score when someone checks my credit report?
Maybe. I know that’s a terrible answer, but it’s as accurate as I can be. Generally, if you open a lot of new credit inquiries at once because you are trying to obtain new loans or financing it could be detrimental (or hurt) your credit score. However, if you are simply having your credit pulled for one loan then it is less likely to hurt your credit score. The idea is that if you are having a lot of credit inquiries all at once and obtaining several lines of credit you are more likely to overextend yourself as it relates to your debt. You, therefore, have a reduction in your credit score.
On the other hand, if you have several different credit pulls when trying to obtain a loan on a big ticket item then your FICO crdit score is unlikely to be impacted. They do this because they understand you are more likely to shop around on mortgage rates, car loans, etc.
The goal should be to only seek new loans when they are a necessity and when you have a low enough debt load that you will be able to pay the back.
What’s the difference between a credit report and credit score?
A credit report is a “report” that shows your credit inquiries, payment history, delinquencies, the types of accounts you’ve opened, the credit limit on those accounts and the payment history. On the other hand, your credit score is determined by a fairly secret formula developed by to give a grade or number to someone’s credit history. This was done so lenders could, at a glimpse, get a better idea of whether someone was a good candidate to be lent money. This picture shows you a pretty good representation of how your FICO credit score is determined.
People will often hear that bankruptcy is on your credit for 7 to 10 years. That’s correct. However, that doesn’t mean it will negatively impact your FICO credit score for that entire time either. Research has shown that a bankruptcy usually hurts your FICO credit score for about two years. If you think you can go by the next two years without making a major purchase (house, car) then the impact of bankruptcy on your credit score should be very limited.
Image found here.
What impact does cosigning for someone else have on my credit report?
The answer is none, in a perfect world. If the person you cosigned on the debt with makes all of the payments then the fact you are a cosigner should not hurt your credit. However, far too often we see the opposite. If someone needs a cosigner it tells you that professional finance companies (with lots of historical data) believe it is likely the person will default on the payments. If they do, you’re on the hook. The finance company can come after you just like you were the original person who owed the money. We see this so often we’ve written a stand-alone blog post about the dangers of cosigning with someone on a debt.
So, step #1, don’t cosign with someone. If you ignored step #1 or have already cosigned with someone then be aware their failure to pay their debts could have a negative impact on your credit history and score.
How much will my credit score go down if I file bankruptcy?
It’s different for everyone but, generally, your credit score will go down by about 100 points. Here is a blog post where we go into more detail.
How do I pull my credit report?
Good question. This is important. In my opinion, the best way to pull your credit report is to go to AnnualCreditReport.com. You can pull all three of your credit bureaus (Equifax, Experian and TransUnion) for free every 12 months. You’ll have to answer a series of questions that are specific to your credit history. After doing this, you should be able to pull your reports. This is where the federal government recommends you go to pull your credit report. Important note: you will be able to pull your credit report here for free. However, that does not mean you will receive your credit score. There is typically a small fee to pay to get your credit score. For purposes of a bankruptcy, we care less about your score prior to filing and more about ensuring the debts listed on your credit report are also listed in your bankruptcy petition.
What is a consumer reporting agency?
A consumer reporting agency or credit reporting agency is the agency that assembles, evaluates and reports consumer credit information. The most common of these credit reporting agencies are Equifax, Experian and TransUnion. However, there are others. The Consumer Protection Financial Bureau has compiled a list of the different CPAs.
Will filing bankruptcy hurt my spouse’s credit score?
It shouldn’t. The only exception to that is if you have joint debts with your non-filing spouse. Your spouse would be responsible for those debts and, if they aren’t getting paid, it could negatively reflect on their credit report. However, if there are no debts or if your spouse pays the joint debts then there should be no negative impact on your spouse’s credit.
What does it mean if a debt is charged off on my credit report?
We get asked this question a lot. I mean…a whole lot. So much that we’ve actually put together a separate blog post about what it means when a debt is “charged off.” Check it out!
Your Credit Report During Bankruptcy
How long will bankruptcy be on my credit report?
A bankruptcy will be on your credit report for anywhere between 7 to 10 years. Usually, a Chapter 7 bankruptcy is on your credit report for 10 years while a Chapter 13 bankruptcy is on your credit for 7 years. However, that does not mean your credit score will be hurt for 7 to 10 years. Instead, your credit score after filing a bankruptcy is usually damaged for about two years.
Does the bankruptcy come off my credit report 7 to 10 years after I file or after my bankruptcy is over?
Bankruptcy will be removed from your credit report 7 to 10 years after the date you file the bankruptcy, not the date it is discharged. I have clients who are always worried that a bankruptcy will be on their credit for 12 years if they file a Chapter 13 bankruptcy (5 years they are in the bankruptcy and then 7 years after the discharge of the bankruptcy). That’s not the way it works. They look at the date the bankruptcy is filed.
How long does bankruptcy hurt my credit score?
Bankruptcy will typically hurt your credit score for two years from the date you file the bankruptcy. It will be on your credit report for 7 to 10 years but that doesn’t mean it will actually hurt your FICO credit score for that entire period. Instead, you are looking at a negative impact for about two years. However, it’s not uncommon for someone’s credit score to improve much, much quicker than that.
How is my credit report impacted if I don’t finish my bankruptcy?
Your credit report and score will be impacted the same as if you had filed a bankruptcy. In other words, it will still show the bankruptcy filing. However, if you don’t receive a bankruptcy discharge then you are still responsible for the debt that would have otherwise been wiped out in a successfully discharged bankruptcy. Therefore, you have the worst of both worlds. You have the negative impact of a bankruptcy filing on your credit and you don’t have the benefit of having your debts wiped out. If you can at all avoid it, you should try to avoid a bankruptcy dismissal.
How does a bankruptcy show up on my credit report?
When you file a bankruptcy, it will typically show up on your credit report within about 90 days. That time period varies because it will depend on how often the credit bureaus refresh their information. When looking at your credit report after a bankruptcy filing it should show the debts listed in your bankruptcy as pending in a bankruptcy. It will not show those debts as discharged until your bankruptcy is discharged.
What will my account balances show during a bankruptcy?
Your account balances after filing a bankruptcy should show the debts are pending in a bankruptcy. It should not show that you still owe those debts because they are under the umbrella of the bankruptcy. Once you receive a discharge of your debts those balances will be zeroed out to show the debts are gone.
Should I sign a reaffirmation agreement on my house so the payments show on my credit report?
When the bankruptcy laws were reformed in 2005, one of the new requirements for some Chapter 7 cases was a “reaffirmation agreement.” A reaffirmation agreement is a document that is often filed in Chapter 7 cases. However, there are only certain circumstances when a Chapter 7 debtor should sign a reaffirmation agreement.
What is a reaffirmation agreement?
A reaffirmation agreement is a document that is signed by the debtor (the person who filed bankruptcy), the debtor’s attorney, and the representative for the creditor. The purpose of a reaffirmation agreement is to keep you (the debtor) liable for the debt you owe to that creditor, even though you are filing bankruptcy.
My mortgage company is saying I need to sign (or should have signed) a reaffirmation agreement for my mortgage/house.
If you have a house that you want to keep after your Chapter 7 case is filed, then you do not need to sign a reaffirmation agreement. The way the bankruptcy laws are written allows you to keep your house as long as you stay current on your monthly mortgage payments. In fact, in the Middle District of North Carolina (Greensboro, Winston-Salem, and Durham) the bankruptcy Judges do not allow reaffirmation agreements to be signed on mortgages unless there is a substantial change in the terms of the loan that are benefiting the debtor.
So in other words, even if your mortgage company is pushing you to sign a reaffirmation agreement, unless they are agreeing to change the terms of the loan under the reaffirmation agreement by changing the interest rate or monthly payment, then you cannot sign a reaffirmation agreement on your house.
My house payments aren’t showing up on my credit report, how do I change that?
Your house payments probably aren’t showing up on your credit report because you did not sign a reaffirmation agreement on your mortgage. That’s actually a good thing. However, we understand it becomes a thorn in your side when your payments aren’t being reflected on your credit report. One way to remedy this is to request a payment history from your mortgage company once every six months and then provide that to the credit bureaus and ask them to reflect these payments being made, as is reflected in your payment history. Our clients have had success doing this.
Your Credit Report After Bankruptcy
How long does bankruptcy ruin my credit?
If you are considering getting a clean slate and filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy in North Carolina, you have probably heard that bankruptcy will “ruin your credit for 10 years.”
Fortunately, this is not true – as long as you are taking the necessary steps to care for your credit post-bankruptcy.
How Long Will It Be On My Credit Report?
What is true is that when you file bankruptcy, the bankruptcy will stay on your credit report for seven to ten years. This means that for at least seven years from the date your bankruptcy case is filed, bankruptcy will show on your report. After seven years from the date you filed, you can contact the credit bureau to request the bankruptcy be removed, but they are not required to remove it until ten years have passed.
However, just because a bankruptcy shows on your credit report, does not mean your credit is ruined for ten years.
How Long Will My Credit Score Be Hurt?
Your credit score will likely be impacted by the bankruptcy for the first two or three years immediately following your bankruptcy filing. After that time, it is important for you to work on rebuilding your credit, even though the bankruptcy is still showing on your credit report. By working on rebuilding your credit while the bankruptcy is still showing, you are taking important steps to ensure your credit is not “ruined” for ten years. If you are in Chapter 13 bankruptcy, however, be sure to talk to your attorney before you incur any new credit or debt.
After two or three years following your bankruptcy filing, if you have been working on rebuilding your credit, you will begin to see your credit score increase again. It is important to remember that the bankruptcy is similar to a wound – it will not heal overnight, and it takes diligence, time, and care to completely heal. Eventually, that wound will turn into a scar and can still be seen but is not painful. Just like after two or three years the bankruptcy will still be visible on your report but will not have a big impact on your actual FICO score. By caring for your credit and taking the necessary steps to rebuild it during the seven to ten years it is reflected on your credit report, you will ensure that the bankruptcy gives you a true clean slate – and that it does not ruin your credit for ten years.
Just be patient, and remember that your score will not improve overnight. You will need to review any and all post-bankruptcy credit offers carefully, to be sure the interest rate is not outrageous – you certainly don’t want to end up with a debt that will haunt you for years.
How can I rebuild my credit after bankruptcy?
There is a six-step process to rebuild your credit after bankruptcy. We have written a blog series explaining each of these steps in detail. You can read them, in full, here:
How will debts discharged in bankruptcy be reported on my credit report?
After your debts are discharged in a bankruptcy they will be show a balance of zero on your credit report and should show the debts have been discharged in the bankruptcy. This tells other financial institutions that you no longer owe these debts.
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