There are countless myths when it comes to bankruptcy. Many people believe myths such as only financially irresponsible people file bankruptcy, or that filing means they will lose everything.
Some of the most common myths surround your credit. Here, we will discuss some of these.
Myth: Bankruptcy permanently damages your credit
Fact: It is true that filing bankruptcy affects your credit, but it will not ruin it – and it certainly will not ruin your credit permanently.
Your credit score will drop after bankruptcy. However, there are many factors that affect how much bankruptcy impacts your credit score. The effect will be different for everyone.
You can actually start rebuilding your credit the moment after the bankruptcy discharge. That brings us to the next common myth.
Myth: You will not be able to get a credit card after bankruptcy
Fact: This is not true. Filing bankruptcy does not prevent you from obtaining a credit card. Even so, there are two things to note:
- You must wait until after receiving the bankruptcy discharge before obtaining a new card.
- It is critical to prepare and have a plan in place before applying for a new card.
As Bankrate states – and many sources agree – using a credit card is actually one of the best ways to build up your credit again. Even so, you must have a plan for how you will approach your debt and maintain your financial health after obtaining a new start.
That is why many people start with secured credit cards after they file bankruptcy. Secured credit cards require a deposit before spending – essentially, they are much more like a debit card. You could obtain secured credit cards to help improve your score again, with the advantage of less debt. It will not be long until you can obtain a new credit card, either.
Myth: Your bankruptcy will remain on your credit report
Fact: Your credit report includes a lot of pertinent financial information about you, including:
- Personal information
- Current and past accounts
- Payment histories
- Liens and judgments
Bankruptcy falls under the category of pertinent financial information. Therefore, it will appear on your credit report. However, it does not remain permanently. A bankruptcy filing stays on your credit report for seven to ten years, depending on whether you file Chapter 7 or Chapter 13 bankruptcy.
The most important thing to note is that rebuilding credit takes time. Bankruptcy may affect your credit in the short-term, but with a financial plan and a focus on the long-term, you can move forward in your new financial future.