Improving FICO Score After Chapter 7 Bankruptcy

Reader Question: I filed chapter 7 bankruptcy and it was discharged over a year ago. Since filing, in order to improve my credit, I have a low-limit credit card, an auto loan, and a student loan, all of which have been paid on time for over a year, they are reporting to the credit bureaus as such. However, my FICO scores are not improving. I'm hoping to be able to purchase a home within the next year. Is there anything else I should be doing to raise my FICO score?

Without knowing your full financial picture, I can offer the usual advice for improving a FICO credit score. For starters, you might want to check out the FICO scoring chart here on the blog. It shows the factors that have the biggest impact on your score. Thus, they are the factors you should focus on when improving your FICO number.

A Chapter 7 bankruptcy filing will stay on your credit report for ten years. Some of the other filings (such as Chapter 13) come off after seven years, because they include full or partial repayment of the debt. But a Chapter 7 usually does not include repayment, so it typically stays on your credit for the full ten years allowable by law.

Of course, you can improve your FICO score during that ten-year period. In fact, the bankruptcy filing will have less of an impact on your score as time passes. If it's only been a year since the date of your filing, you could see your credit score start to go up soon -- if everything else is optimal.

You mentioned the low-limit credit card you have. Having a lower limit can sometimes affect your FICO score, especially if you're using most of that limit. If you look at the chart I linked to above, you'll notice that your "amounts owed" accounts for 30% of your score. The industry term for this is credit utilization ratio, which simply refers to how much of your available credit you are currently using. If your card has a low limit, and you are nearly maxed out on that limit, then your utilization ratio will be high. This can hurt your overall score.

I don't know if this is the case with you or not, but it's entirely relevant so I had to mention it. If you think you're using a high percentage of your available credit, you might want to start by paying down your balance. You can keep the account open to maintain the length of your credit history, if necessary. But by reducing the balance, you will likely improve your FICO score at the same time.

I've listed some related articles below that might help you out. Good luck.

Related articles:

• Improving Your FICO Score Fast in 2009
• How to Repair Credit After a Bankruptcy Filing