Chapter 7 bankruptcy in Jackson, Mississippi, discharges unsecured debt through liquidation, which requires you to sell assets. With Chapter 13, you pay the debts gradually through a restructuring plan. However, you may notice your credit score will drop for several years, but there are ways to rebuild it.
How bankruptcy impacts credit scores
While Chapter 7 bankruptcy provides you with relief from debts, it remains on your credit report for 10 years. Even if the debts listed on the report have a $0 balance, discharged debts make lenders leery. Chapter 7 has a bigger impact on your credit score since you aren’t making efforts to pay debts.
Chapter 13 commonly remains on the credit report for seven years and has less of an impact. This is because you made an effort to pay back the creditors, which makes you look more favorable.
How to rebuild credit
Try to make future payments on credit accounts on time because it accounts for 35% of your FICO score. This is especially important if you reaffirmed a debt or have debts with liens because bankruptcy won’t remove them.
If someone in your household has good credit and a credit card, he or she may be willing to add you as an authorized user. However, ensure the card provider has credit reporting for authorized users, or your credit won’t improve.
An effective way to rebuild credit after bankruptcy is by applying for a secured credit card. These cards require a security deposit, which is equal to your credit limit and commonly refundable. These cards have higher interest rates, but if you make timely payments, your limit increases.
It is also important to monitor your credit report for errors and remove them. If you can’t decide whether to file bankruptcy, consider seeking financial advice to discuss your options.