What Is a Good Bankruptcy Score to Have?

While there is no distinct credit score specifically labeled “bankruptcy score,” this article clarifies how a bankruptcy filing impacts traditional credit scores. It also provides guidance on rebuilding credit effectively after such a significant event.

Clarifying the Concept of a “Bankruptcy Score”

There is no unique “bankruptcy score” used by lenders or credit bureaus. A bankruptcy filing directly and significantly impacts an individual’s standard credit scores, such as FICO Score and VantageScore. These models evaluate creditworthiness based on factors like payment history, amounts owed, credit history length, credit types, and new credit applications.

Bankruptcy is recorded as a major derogatory event on credit reports, directly influencing these scores. This public record signals to potential lenders that an individual has previously been unable to meet their financial obligations, leading to a substantial decrease in their credit score.

Initial Credit Score Changes After Bankruptcy

Immediately following a bankruptcy filing, an individual’s credit score typically experiences a significant decline. The exact number of points a score drops varies depending on the person’s credit standing before the bankruptcy. Individuals with high credit scores before filing often see the most dramatic decreases, potentially hundreds of points.

This sharp reduction occurs because bankruptcy reflects a failure to repay debts, which negatively affects the payment history and amounts owed categories, two major components of credit scoring models. The bankruptcy filing itself becomes a public record that is reported to all three major credit bureaus—Experian, Equifax, and TransUnion. This negative information remains on a credit report for an extended period. A Chapter 7 bankruptcy typically stays on a credit report for 10 years from the filing date, while a Chapter 13 bankruptcy generally remains for seven years from the filing date.

Steps for Rebuilding Credit

Rebuilding credit after bankruptcy requires consistent effort and strategic financial management. Several effective methods can help individuals improve their credit profile.

Secured Credit Cards

One effective method involves securing a secured credit card. These cards require a cash deposit, which often serves as the credit limit. This deposit minimizes risk for the issuer, making approval easier for those with damaged credit. Using the card responsibly by making small purchases and paying the full balance on time each month helps establish a positive payment history, which is reported to credit bureaus.

Credit-Builder Loans

Another option is a credit-builder loan. Instead of receiving funds upfront, the loan amount is held in a locked account. The borrower makes regular payments over a set term, and these payments are reported to the credit bureaus. Once the loan is fully repaid, the borrower receives the saved funds, having simultaneously built a positive payment history.

Authorized User Status

Becoming an authorized user on another person’s well-managed credit card account can also contribute to credit rebuilding. If the primary account holder maintains a low credit utilization and makes consistent on-time payments, that positive activity can appear on the authorized user’s credit report. However, the authorized user’s credit can also be negatively impacted if the primary account holder mismanages the account.

Payment History and Credit Utilization

Maintaining a diligent payment history on all new or remaining debts is paramount. Timely payments demonstrate financial responsibility and are a primary factor in credit score calculations. Additionally, keeping credit utilization low is crucial. This ratio, calculated by dividing the total amount of credit used by the total available credit, should ideally be kept below 30%.

Monitoring Credit Reports

Regularly monitoring credit reports from all three major bureaus is a significant step. Individuals are entitled to a free credit report from each bureau annually. Reviewing these reports helps identify inaccuracies and track progress in credit rebuilding.

Setting Realistic Credit Score Goals

Setting realistic credit score goals is an important part of financial recovery after bankruptcy. While immediately returning to an “excellent” credit score is unlikely, achieving a “fair” or “good” score is a tangible and achievable goal. A fair credit score generally falls within the 580-669 range for FICO and 601-660 for VantageScore. A good score is typically considered to be 670-739 for FICO and 661-780 for VantageScore.

Reaching these ranges indicates a positive trajectory and opens up more financial opportunities, such as qualifying for better interest rates on loans or new credit products. The impact of bankruptcy on a credit score lessens over time, even before it is removed from the credit report entirely. Consistent, responsible credit behavior following bankruptcy steadily builds a more favorable credit profile.