by Jeff Shute02.06.21

The reasons for going bankrupt are that you had or have creditor debts that could not be paid. So with that, your credit score takes a hit. Although it can initially feel overwhelming to be faced with bankruptcy, it’s not something you need to deal with for the rest of your life. Although your credit score is incredibly important for future credit (including property purchases) and bankruptcy negatively affects credit, there is life after bankruptcy, even for your credit score. Here are some ways you can inject health back into your credit score to help you get back on your feet after bankruptcy. 

What happens to my credit score after bankruptcy?

Your bankruptcy will appear on your credit report, however you are also responsible for letting any future creditors know of your bankruptcy, whilst your bankruptcy is ongoing. Bankruptcy also appears on your credit history for longer than your bankruptcy period; five years from the date you were declared bankrupt, or two years from when it ended. Whichever comes first (bankruptcy typically runs for three years and one day, but individual circumstances sometimes have alternate timeframes - it can run shorter, or up to eight years). Learn more about what happens after bankruptcy ends.

So, how do I improve my credit score after bankruptcy?

1. Avoid unpayable debt

Ok, this might seem obvious. However, it’s not unheard of to find yourself in a similar situation after bankruptcy to that which got you there in the first place. Of course, our hope is that valuable lessons are learned through the bankruptcy process that aren’t just cautionary; Shaw Gidley offers clients the tools to assist with effective financial future planning. Credit is a vital part of life and business in many ways, so it’s not easy to avoid debt altogether. Instead, it’s about fool-proofing your future as much as possible. Try to keep debts low and less than what you can actually afford. Give yourself that gap in the event that, as we learned in 2020 from Covid 19, unforeseen circumstances swiftly and dramatically alter your credit repaying position. Also, do your best to pay debts on time to avoid interest and a snowball of debts. 

2. Don’t opt in for unnecessary credit

Unlike when your credit score began, accruing credit or attempting to rebuild your credit is not as ideal for bolstering a positive report. Instead, retain a conservative credit portfolio in the years following bankruptcy. It might be difficult to get approval for credit after going through bankruptcy, but don’t let this temp you into applying to credit agencies that don’t check credit history or are ‘too easy’ to obtain approval. If it seems too good to be true, it usually is. These places will sting you with extreme interest rates that will have you in deeper debt that is more difficult to get out of. They will also reflect poorly to more legitimate lenders down the line. 

3. Keep savings healthy

It’s important to demonstrate an ability to independently save, over time. Consistently increasing your savings account will reflect positively to creditors, and give you a safety net if you ever do find yourself experiencing low cash flow in the future. 

Do you have questions about creating a successful financial future after bankruptcy? 

Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.