How to Raise Your FICO Score After Chapter 13 Bankruptcy

Question: “Is it possible to raise your FICO score after filing Chapter 13 bankruptcy, and if so how do I go about it?”

Unfortunately, this is a common question we get from our readers. A sign of the times. So let’s start with the good news, for all of those who have had to file for bankruptcy recently. Yes, you can raise your FICO score after Chapter 13 bankruptcy. And in this article, I’ll tell you exactly how to do it.

For the benefit of all readers, I’d like to start off with a couple of definitions:

FICO score: The acronym FICO stands for the Fair Isaac Corporation. This is the company that created the credit-scoring model that’s most popular among mortgage lenders. Their scoring system takes data from a person’s credit report and turns it into a FICO credit score. This is a somewhat simplified definition, but it’s all you need to know right now.

Chapter 13: This is a form of bankruptcy that allows individuals to undergo a financial “reorganization” under the supervision of a bankruptcy court / judge. Chapter 13 bankruptcy usually includes a court-approved repayment plan, through which the person pays back some or all of the debt. This makes it different from Chapter 7, in which most of the debt is discharged. In other words, Chapter 7 basically wipes the slate clean, while Chapter 13 lets the individual pay back some of what he/she owes.

Chapter 13 vs. Chapter 7 Bankruptcy

It’s important to understand the difference between these two forms of bankruptcy, because they can affect your credit score differently. For one thing, there is the length of time a bankruptcy can stay on your credit report. Legally, Chapter 7 can stay on your credit report for a period of up to ten years.

Chapter 13 can stay on your credit for (A) seven years from the date of discharge, or (B) no longer than ten years from the filing date if it has not been fully discharged. In other words, Chapter 13 will come off your credit sooner than Chapter 7, if you carry out the court-ordered repayment plan.

Let’s move on to talk about how you can raise your FICO score after Chapter 13 bankruptcy.

How to Raise Your Score After Filing

So let’s say you’ve filed for Chapter 13 bankruptcy, and you’ve been through the court process. The court has approved your repayment plan, through which you will repay some of your debts. The bankruptcy filing eventually made its way onto your credit report, which directly affects your FICO credit score. What happens now? How much damage will it do, and what can you do to undo some of that damage.

I’m not going to speculate on how many points your credit score will drop after filing Chapter 13 bankruptcy — and for two reasons. For one thing, estimates vary widely. And secondly, you probably already know the damage that can be done by filing Chapter 13, or else you soon will. So instead of speculating on the amount of damage, let’s talk about what you can do to rebuild from the damage.

Here’s an important concept to keep in mind. Your bankruptcy filing will do the most damage when it first hits your credit report. It will continue to hamper your FICO score for the entire time it stays on your report. But (and this is a pretty big “but”) it will have a diminishing effect over time. To put it more plainly: the credit-damaging effects of a bankruptcy filing will lesson over time. So it’s certainly possible to raise your FICO score after a Chapter 13 bankruptcy. Even during the seven-year period when it stays on your report, you can do things to boost your credit score.

Here’s an another important concept. How much you can raise your FICO score after bankruptcy depends on what you do during the post-filing period. Here’s what you need to do to boost your score as much as possible:

  1. Make sure you follow your court-approved repayment plan. If you do this, the bankruptcy should be fully discharged after seven years. It should come off your credit report at that point. This is your long-term goal.
  2. Make sure you pay all of your bills on time. In particular, I’m talking about credit card payments, loans, and other items that get reported to the credit-reporting bureaus. This will help you reestablish a pattern of responsible credit usage. This lays the groundwork for a better FICO score in the future.
  3. Consider the amount of credit card debt you currently have. If you can reduce your credit utilization ratio (which is the amount of your available credit limit you are using), you can further improve your FICO score. This might be hard to do, given all of the other debt payments you have to make. But it can go a long way toward raising your credit score.

I like to refer to this as “time and good behavior,” a phrase you often hear used for prison sentences. 🙂 You can raise your FICO score after a Chapter 13 bankruptcy with time and good behavior. The more you distance yourself from the filing date, the less impact it has on your FICO score. This is the “time” side of the equation. But you must also practice “good behavior” in these sense of paying your bills on time, limiting your credit usage, etc. Put these two things together, and you’ll be able to raise your credit score steadily.