Understanding Your Credit Score After Debt or Bankruptcy

You’ve probably heard a lot about credit scores. That three-digit number can feel confusing or even like a judgment.

Here’s the truth: Your credit score is just a snapshot of recent history. It’s not a measure of your worth.

You’ll learn what affects your credit score, how it works, and how you can rebuild it after setbacks.

What Makes Up Your Credit Score

Most lenders use a scoring model called FICO to calculate your credit score. Five main factors impact your score:

• Payment history (35%): Are you making payments on time?
• Credit utilization (30%): How much available credit are you using?
• Length of credit history (15%): How long have your accounts been open?
• Credit mix (10%): Do you have various credit types?
• New credit (10%): Have you recently opened new accounts?

Payment History Impacts Your Score Most

Your payment history is the single most important part of your credit score. It makes up about 35% of your FICO score.

Payment history tracks whether you’ve paid your debts on time. This includes credit cards, car loans, personal loans, and mortgages.

Late or missing payments can seriously hurt your score. But life happens, and you’re not alone if you’ve missed payments.

The good news: You can always rebuild. Focus on making on-time payments to boost your credit score. Over time, positive marks help push your score upward.

Credit Utilization Affects 30% of Your Score

Your credit utilization rate makes up about 30% of your FICO score. Keeping it low helps improve your score over time.

Credit utilization measures how much available credit you’re using. For example, a $500 balance on a $1,000 limit equals 50% utilization.

Most experts recommend keeping it under 30%. Lower is even better. If you’re rebuilding credit after bankruptcy or financial hardship, aim for under 10%.

You don’t need to carry a balance to help your score. Paying your full balance each month shows lenders responsible credit use.

Length of Credit History Matters

Length of credit history makes up about 15% of your FICO score.

Credit history length includes your oldest account, newest one, and the average across all accounts. Longer history helps your score, especially with responsible use.

Closing an old credit card could shorten your history and raise your utilization rate.

If you’re starting fresh after bankruptcy, you may not have much history yet. Everyone starts somewhere. Keeping accounts open (even unused ones) helps build average age over time.

Be careful with new credit: Opening several accounts at once shortens your average.

Credit Mix Makes Up 10% of Your Score

Credit mix refers to the different types of credit you use.

Two main credit types exist:

• Revolving credit, like credit cards or lines of credit
• Installment credit, like car loans, student loans, or mortgages

Revolving credit lets you borrow up to a limit and carry a balance. Installment credit is a fixed loan you repay in set amounts.

You don’t need to open new accounts just to improve credit mix. Many people start rebuilding with one type, like a secured credit card. Our partner Kikoff offers simple credit-building tools to help you grow your mix naturally.

New Credit Accounts for 10%

New credit measures how often you’ve applied for credit recently.

Each credit application usually triggers a hard inquiry. This causes a small, temporary score dip. A few inquiries aren’t a big deal. Several in a short period signal risk to lenders.

If you’re rebuilding credit, start with one new account. Try not to open too many at once. Giving each account time to grow strengthens your credit.

Hard vs. Soft Inquiries

A hard inquiry happens when a lender checks your credit because you applied for credit. Hard inquiries can slightly lower your score temporarily.

A soft inquiry happens when you check your own credit or a company does a background check. It doesn’t affect your score at all.

If you’re not sure what kind of inquiry will run, ask whether it’ll be a hard or soft pull.

How to Get Your Credit Report for Free

You can get a free credit report every week from each of the three major credit bureaus. Visit AnnualCreditReport.com to access reports from Experian, Equifax, and TransUnion.

This is the only website authorized by the federal government to provide free credit reports. No cost, no credit card needed.

Your credit report is a detailed record of your credit history. It includes loans, credit cards, and payment activity. The information in your report helps calculate your score.

Your credit report is like a transcript showing detailed history. Your credit score is like a grade that sums it all up.

Check your report regularly to spot errors, monitor debt accounts, and catch identity theft early.

You can request reports online, by phone at (877) 322-8228, or by mail.

What to Look for on Your Credit Report

When you review your credit report, check these main things:

• Personal information: Verify your name, address history, and Social Security number are correct.
• Credit accounts (tradelines): Make sure all loans and credit cards belong to you. Verify balances and payment statuses look accurate.
• Account status: Look for accounts listed as delinquent or in collections.
• Inquiries: These show who has checked your credit.
• Public records: These might include bankruptcies, foreclosures, or tax liens.

If you spot something that doesn’t look right, file a dispute with the credit bureau. They’re required by law to investigate and remove or correct inaccurate information.

How to Check Your Credit Score

A credit score is a three-digit number that estimates how likely you are to repay borrowed money.

Your score isn’t included in your free credit report. Many banks and credit card companies now offer access to your score. You can also use free services like Credit Karma, Credit Sesame, or Experian.

Keep these things in mind when checking your credit score:

• You don’t have just one score. You may see slightly different scores depending on the scoring model and credit bureau.
• Checking your score won’t hurt it. This is a soft inquiry that doesn’t lower your score.
• It helps track progress. Watching your score over time shows how your habits are making a difference.
• Small changes are normal. Credit scores naturally fluctuate a few points. Focus on overall progress over time.

How Credit Scores Are Calculated

Credit scoring companies like FICO and VantageScore use computer algorithms. They analyze your credit report and compare your habits to millions of other reports. The model predicts how likely you are to repay debt.

To generate a score, you need at least one account open and active. FICO requires one account open for six months or more. At least one account must be reported within the last six months.

Your credit score doesn’t include personal details like income, age, race, address, or job title. It’s based only on credit-related activity.

Lenders use your credit score to determine approval, offer amounts, and interest rates.

What Your Credit Score Actually Means

In the FICO model, credit scores range from 300 to 850.

Lower scores make approval harder with higher interest rates. Higher scores improve approval chances with lower interest rates.

Here’s how different credit score ranges work:

• 300-579 (Poor): May lead to denials or very high interest rates. Focus on small wins like on-time payments and secured credit cards.
• 580-669 (Fair): May qualify for credit with higher rates. Keep balances low and continue making consistent payments.
• 670-739 (Good): Qualifies for many loans and credit cards. Stay consistent with on-time payments.
• 740-850 (Excellent): Likely to get the best rates. Maintain low balances and avoid late payments.

The Truth About Bankruptcy and Credit Scores

You’ve probably seen scary claims that bankruptcy destroys your credit score. The truth: The impact depends on your credit history before filing.

Here’s what happens after bankruptcy:

• If your score is good or excellent before filing, you’ll likely see a bigger drop.
• If your score is already fair or poor, the drop tends to be smaller.
• If you already have accounts in collections or default, those usually damage your score more than bankruptcy would.

While your credit score matters, so does your overall financial health. For many people, trying to protect a score while carrying unmanageable debt is like patching a sinking boat.

If you file bankruptcy and your score takes a hit, it won’t last forever. You can always rebuild.

How to Start Rebuilding Your Credit

If your credit score isn’t where you want it, you’re not alone. Credit scores are designed to change over time. Even negative items eventually drop off your report.

Here are simple steps you can take to start rebuilding your credit:

• Keep your credit card balances low
• Use tools like secured credit cards or credit-builder loans
• Dispute credit report errors
• Write a goodwill letter to ask a lender to remove a past late payment

Our partner Kikoff helps you build credit with simple, affordable tools. You can start rebuilding your score today with small, manageable steps.