Are old or new bankruptcies worse for credit scores?

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Q. If someone has a bankruptcy on their record that is nine years old, does this still have the same effect as a bankruptcy that’s only one year old?
— Trying to improve

A. How a bankruptcy impacts a credit score involves a lot of factors.

When someone files bankruptcy, they do so to get rid of their debt and start over.

“Many times people who file for bankruptcy already have bad credit and filing for bankruptcy actually improves their credit score,” said Karra Kingston, a bankruptcy attorney in Union City. “In order to understand this, you need to have some basic understanding as to how credit bureaus calculate a credit score.”

Your credit score is calculated by looking at different factors, including your credit history, Kingston said.

“When you file bankruptcy and your debt is discharged your credit score can actually increase because you don’t have any more debt reported,” Kingston said. “Many of my clients are under a false impression that their credit score will go down after they file bankruptcy and when they see their credit score actually go up they are pleasantly surprised.”

Kingston said right after you get your discharge, more often than not, you will have to take steps to maintain and/or rebuild your credit.

Credit card companies will offer you credit cards immediately because they see you have no debt, she said. What you are applying for and who the lender is will determine the success of approval immediately after filing bankruptcy.

“Interest rates may be higher and some lenders may be more reluctant to extend credit because they want to see that you can responsibly handle debt again,” she said. “As years since the bankruptcy pass, creditors have more of an indication of your credit practices.”

If you have taken the proper steps since the bankruptcy, you may have perfect credit again within two years after filing, she said.

“More specifically to answer your question, as long as you have been maintaining a good credit score for the nine years past your bankruptcy, then it may be better because you have a lot more history to show the lender,” she said. “Creditors will be more likely to extend credit at that nine-year year mark because they see you have been making on time payments.”

Also remember a Chapter 13 bankruptcy remains on your credit report for 7 years, while a Chapter 7 bankruptcy remains on your credit report for 10 years.

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This story was originally published on April 22, 2019.

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