Some of the negative rumors about bankruptcy floating around can keep people from filing when they would actually benefit substantially from an automatic stay and a discharge of their unsecured debt. One of the most persistent and harmful myths about bankruptcy is arguably the idea that it destroys your creditworthiness.
Quite a few people seem to think that once they file for bankruptcy, they won’t ever be able to make purchases on credit again. That simply isn’t the case. While bankruptcy does initially damage your credit, its impact decreases over time. In other words, not only will credit still be available, but you may qualify for better terms than you could before bankruptcy once it comes off of your credit report.
The earliest credit available likely won’t be the best
Filing for bankruptcy makes you both high-risk and highly attractive to potential lenders. You are high-risk because of potential issues with managing your budget but that very same fact also makes you attractive to credit card companies. Lenders don’t make money on those who pay off their balance every month. Borrowers who carry a balance and incur fees are the ones who generate the largest amount of profit for credit card issuing companies.
Additionally, because you just recently filed bankruptcy, they know that you won’t be able to file bankruptcy for some time in the future, allowing them to potentially make money off of you without the risk of losing out on repayment due to a bankruptcy discharge.
Credit card offers may start coming in within weeks of your bankruptcy discharge. Some of them will require a security deposit. Others will simply have unfavorable terms. Getting a credit card early after bankruptcy and making timely payments in full can help you quickly rebuild credit, allowing you to qualify for better credit offers sooner.
Bigger forms of credit become available after a few years
Bankruptcy will stay on your credit report for either seven or 10 years, depending on the kind of bankruptcy you file. Thankfully, you don’t have to wait until the bankruptcy comes off your credit report to purchase big-ticket items.
You can qualify for a mortgage or finance a vehicle as early as two years after a bankruptcy and receive acceptable terms on a loan. However, the longer you can wait after your bankruptcy, the less of an impact it will have on your score and the credit offer you can command. You can use the time while you’re waiting to develop good credit habits, like paying off your balances in full every month.