Bankruptcy occurs when individuals or businesses can no longer meet their debt obligations. This can significantly affect your credit score, impacting your financial future. When you declare bankruptcy, your credit score quickly decreases indicating that you are having financial difficulties. A bankruptcy record can lower your credit score by as much as 200 points, depending on your circumstances. Getting fresh credit might be difficult if this bad record remains on your credit report for up to ten years. Lenders have the right to modify interest rates or reject applications completely. And bankruptcy is a public record, it can affect job prospects and rental applications. Co-borrowers may also see their credit scores impacted by defaults related to your bankruptcy.
If you've already missed payments or have other negative marks on your credit report, the impact of bankruptcy may be less severe. On the other hand, declaring for bankruptcy may result in a larger reduction in your credit score if you have a solid credit history.
Strategies to Rebuild Your Credit
1. Assess Your Expenses: Review your financial status first, then make a budget to increase savings and set up an emergency fund.
2. Track Your Credit Reports: Regularly check your credit reports from the major Indian bureaus CIBIL, Experian, TransUnion, and CRIF to understand your credit status and identify areas for improvement.
3. Apply for Secured Credit: Secured credit cards are designed for people with no credit history or a bad credit history. You'll need to submit a security deposit, which serves as your credit limit. To show that you are using credit responsibly, use the card for modest expenditures and pay off the entire amount each month.
4. Keep credit utilisation low: Keep your credit card balances low relative to your credit limits. Aim to keep your credit utilisation ratio below 30 percent as high credit utilisation can negatively impact your credit score.
5. Consider Credit-Builder Options: Look into credit-builder plans where funds are held in a secured account, with repayment reported to credit bureaus to help improve your score.
Bankruptcy might be frightening, but it's also a chance to review your financial plan. You may endeavor to restore your credit score and attain long-term financial stability by concentrating on prudent credit management and spending habits.
