Most of my clients were at one point scared of bankruptcy. They thought that it would ruin their credit scores for 10 years and disqualify them from credit cards, car loans, mortgages, or apartment rentals. In reality, quite the opposite is true.
For most clients struggling with debt, a bankruptcy may be the only way for them to improve their credit scores so they can qualify for the purchases or rentals they desire. Not only that, but it may also be the quickest and least painful way to accomplish this goal.


Your credit score is an indicator of your financial health at a certain point in time. It tells creditors whether you’re likely to repay debts based on certain factors.
The two most important factors are your most recent payment history and your debt to credit ratio. Combined, these factors account for about 65% of your score.
Both factors and their influence on your score are easy to understand. If you make payments on time each month, you’ll have a good payment history and your credit score is likely to go up. Miss payments consistently or have a history of late payments, and your credit score will suffer.
Likewise if you pay off your balances each month in full, you have a low debt to credit ratio and your credit score is likely to go up. Max out on your available credit and carry large balances from month to month, and your credit score is likely to decrease.


Before you get out of debt, both of the above factors are working against you in a viscous cycle bringing down your credit score each month. But, after you get out of debt, you can begin to use these factors to quickly and easily rebuild your credit score.
That’s because your score is not static. It changes quite often based on your recent behavior.
Lenders want to know what your financial health is today. What you did 5 or 10 years ago is worthless information when lenders are deciding whether to extend credit to you now. That’s why your credit score puts the most weight on your recent activity.
Knowing this, I instruct my clients to accept a no-fee credit card after their case is completed. (Most clients report getting a number of credit card or car loan offers within weeks of filing.) I then instruct them to charge a minimum amount (for example, $10.00 per month) and pay it off in full each month. This begins to build a good credit history.
After their case is completed most clients are completely debt free and, thus they have a good debt to credit ratio. Every month that they make a charge and pay it off, they not only build a good payment history but also a history of good debt to credit ratios.


This behavior can easily lead to a good credit score in about two years. So while the bankruptcy will be on their credit report for seven to ten years, its effect will be minimum on their credit score in two years.
Soon they’re able to obtain credit for the cars, homes, and other purchases they desire. Compared to your other options, there really may be no quicker and easier way to fix your financial health.