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Specific Steps to Rebuild


Strategies to Rebuild Your
Credit Rating After Bankruptcy


A question we often hear at Clark and Washington has to do with credit scores - how bad will a bankruptcy hurt my credit score?  how long will my credit score be depressed following my bankruptcy?  when will my score start to improve?

Because your credit score reflects your payment history and debt to income ratios, your credit experience will be different that that of others who are now seeking bankruptcy protection.  However, you can take specific steps to minimize the impact of your bankruptcy and speed up the credit score recovery.  Some of these steps include:

• checking your credit reports from all 3 credit bureaus
• write letters of dispute if you see errors
• if you are behind on an account, bring it current
• if you have previous delinquencies, contact the creditor to ask if there is anything you can do to get the late payment removed or the time it appears on your report shortened
• identify credit accounts where you have an outstanding balance of more than 35% of your available credit - get those accounts paid down or transfer your balance to another account to keep as many accounts as you can below a 35% use threshold
• pay off in-store financing accounts (like furniture stores) - this type of credit can actually hurt your score

Credit reporting today differs greatly from credit reporting twenty or thirty years ago.  Back then, when you applied for credit to buy a house or a car, there is a good chance that a live human being reviewed your credit application.

Now, there will be very little human input into the credit decision making process.  Instead, the major credit bureaus use mathematical algorithms to generate a “credit score” that will be used to determine if you get credit and at what interest rate.

For many years, the companies that developed credit scoring algorithms kept their formulas secret.  In recent years, however, there has been pressure from Congress and public interest groups to make the credit evaluation process more transparent.  While the exact formulas are not public knowledge, we do know that credit bureaus consider the following factors:

• payment history - 35% - late payments will quickly cause damage
• amounts owed - 30% - your credit balance owed to any one creditor should be less than 35% of available credit
• length of credit (how long you have maintained accounts) - 15% - keep old accounts open, instead of closing them and use those old accounts periodically
• new credit (how much is new vs. older credit) - 10% - multiple new credit applications at the same time will hurt you
• type of credit - 10% - installment debt with set payments is better than open ended credit card debt; finance company debt like furniture loans can hurt your credit scores, auto and mortgage loans can help your score

Improving your credit score takes work and Clark and Washington recommends that you approach this task as such.  There are many resources on the Internet that contain accurate and helpful information about managing your credit.  There are even more web sites with bogus and harmful information.  Some of the sites we recommend include:

ClarkHoward.com - Clark Howard is a consumer advocate and radio personality

Dave Ramsey - Dave Ramsey is a radio personality who advocates a debt free lifestyle

About.com - how to improve your credit - About.com functions as a forum for on-line experts

CNN/Money - a service of CNN, Money Magazine and Fortune Magazine

SmartMoney.com - a comprehensive money web site

SuzeOrman.com - the financial site for television financial personality
Suze Orman.  Suze’s site has a focus on women’s financial needs.

Yahoo Finance Personal Finance
- comprehensive web site from Yahoo