How bankruptcy affects your credit score and ways to rebuild it

Bankruptcy is an indicator of financial distress and inability to repay debts. As a result, once you file for bankruptcy, your credit score will plunge significantly.

Bankruptcy is an unfortunate situation when an individual or business declare themselves as insolvent. This happens when one’s assets are far outnumbered by their liabilities, necessitating liquidation or reorganisation of assets. The biggest impact of bankruptcy falls on one’s credit score, which can suffer long-lasting and often severe damage. Let’s find out the various ways in which bankruptcy can affect your credit score.

Credit score drops immediately

Bankruptcy is an indicator of financial distress and inability to repay debts. As a result, once you file for bankruptcy, your credit score will plunge significantly.

Long-lasting negative impact

If you’ve declared bankruptcy, it can potentially reflect on your credit report for up to 10 years. Because it indicates your inability to repay debts, lenders will view you as a high-risk applicant. As a result, your credit applications may be rejected or you may be approved with unfavourable terms.

Moreover, since bankruptcy proceedings are on public record, it may hinder your ability to secure a new job or rent a property.

Challenging to access new credit

When lending to prospective applicants, lenders assess the borrower’s risk based on some crucial parameters, one of which is their credit score. If you have filed for bankruptcy, your credit score is likely to be very poor. As a result, when you apply for credit, lenders are likely to charge you a high interest rate to offset their risk in lending to you.

Impact on existing loans

In case of bankruptcy, your existing loans and credit accounts may be restructured or closed. As a result, your repayment terms may change or the loan may be written off entirely, which will reflect on your credit report.

Impact on co-borrowers or guarantors

In case one of the co-borrowers defaults on a loan, the responsibility to repay it falls on the other borrower. If you have taken a loan with a co-borrower or guarantor, your bankruptcy is likely to affect their credit scores.

While it will not reflect directly on the co-borrower or guarantor’s credit report, bankruptcy-related loan defaults or missed payments will reflect on their credit report.

Rebuilding your credit score

Though it can be challenging, it is possible to rebuild your credit score after bankruptcy. Here are five ways to improve your credit score after bankruptcy.

Bankruptcy is can be a stressful situation for an individual to undergo, financially and mentally. However, it necessitates the need for a renewed financial strategy. This can include a reassessment of ones expenses, creating a budget, prioritising savings so as to rebuild one’s credit score and financial health, both of which are crucial to a financially secure future.

Adhil Shetty, CEO, BankBazaar.com

Bankruptcy is an unfortunate situation when an individual or business declare themselves as insolvent. This happens when one’s assets are far outnumbered by their liabilities, necessitating liquidation or reorganisation of assets. The biggest impact of bankruptcy falls on one’s credit score, which can suffer long-lasting and often severe damage. Let’s find out the various ways in which bankruptcy can affect your credit score.

Credit score drops immediately

Bankruptcy is an indicator of financial distress and inability to repay debts. As a result, once you file for bankruptcy, your credit score will plunge significantly.

Long-lasting negative impact

If you’ve declared bankruptcy, it can potentially reflect on your credit report for up to 10 years. Because it indicates your inability to repay debts, lenders will view you as a high-risk applicant. As a result, your credit applications may be rejected or you may be approved with unfavourable terms.

Moreover, since bankruptcy proceedings are on public record, it may hinder your ability to secure a new job or rent a property.

Challenging to access new credit

When lending to prospective applicants, lenders assess the borrower’s risk based on some crucial parameters, one of which is their credit score. If you have filed for bankruptcy, your credit score is likely to be very poor. As a result, when you apply for credit, lenders are likely to charge you a high interest rate to offset their risk in lending to you.

Impact on existing loans

In case of bankruptcy, your existing loans and credit accounts may be restructured or closed. As a result, your repayment terms may change or the loan may be written off entirely, which will reflect on your credit report.

Impact on co-borrowers or guarantors

In case one of the co-borrowers defaults on a loan, the responsibility to repay it falls on the other borrower. If you have taken a loan with a co-borrower or guarantor, your bankruptcy is likely to affect their credit scores.

While it will not reflect directly on the co-borrower or guarantor’s credit report, bankruptcy-related loan defaults or missed payments will reflect on their credit report.

Rebuilding your credit score

Though it can be challenging, it is possible to rebuild your credit score after bankruptcy. Here are five ways to improve your credit score after bankruptcy.

Bankruptcy is can be a stressful situation for an individual to undergo, financially and mentally. However, it necessitates the need for a renewed financial strategy. This can include a reassessment of ones expenses, creating a budget, prioritising savings so as to rebuild one’s credit score and financial health, both of which are crucial to a financially secure future.

Adhil Shetty, CEO, BankBazaar.com