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The first step to correcting inaccurate or outdated information on your credit report is knowing what creditors are seeing when they pull your information.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?
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Does the bankruptcy come off my credit report 7 to 10 years after I file or after my bankruptcy is over?
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How long does bankruptcy hurt my credit report?
How is my credit report impacted if I don’t finish my bankruptcy?
How does a bankruptcy show up on my credit report?
What will my account balances show during a bankruptcy?
Should I sign a reaffirmation agreement on my house so the payments show on my credit report?
My house payments aren’t showing up on my credit report, how do I change that?
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?
Answer Credit report question #2
How will debts discharged in bankruptcy be reported on my credit report?