Ten years is a long time to wait for something to happen. When that something is a bankruptcy falling off your credit report it can feel like eternity. I filed for bankruptcy in 2006, and as my ten year anniversary approached, all I wanted to know was what kind of credit score change I would see once my bankruptcy was removed.
I can remember as far as six months before the expected bankruptcy removal, Googling to find first hand accounts of people’s scores skyrocketing after their bankruptcy was removed.
Credit score change horror stories
But that’s not what I found. Instead, I was horrified. Rather than reading celebratory stories of massively positive credit score changes, it was just the opposite. I found this thread on CreditKarma that detailed dozens of stories of people that experienced a negative credit score change after their bankruptcy was removed. Here’s one of the posts from the forum thread:
“I just had my approximately 10 year old bankruptcy drop off my Experian report (it is still on my TransUnion and Equifax). My Experian score went from 721 to 680 overnight (down 41 points), while the other two scores remained relatively the same. I can’t wait to see how my bankruptcy DROPPING OFF will effect my other two scores, jeeze!”
And another poster:
“My score dropped 38 points after the bankruptcy came off. Credit scoring is a joke.”
What the heck… how can this be?!?!
One poster seems to have the answer, and I’ll admit… he had me pretty convinced:
“It doesn’t increase. After your BK is removed you are grouped with others who haven’t filed BK, so your FICO will go down. The sooner you started rebuilding credit after your discharge, the softer the blow.
So for people who are in BK your score is based on other people who are in BK. Once your BK is removed your score is based on other people who have no BK on their record. That’s why your score decreases, it makes sense since people in BK on average have lower scores than people who don’t have BK.
Hope that helps!”
Surely, this can’t be right… can it?! More searching led to yet another bankruptcy removal discussion thread. The general consensus was the same: Expect your credit score to drop after your bankruptcy is removed.
Waiting for my credit score change
I had visions of a huge jump in my credit score come October 2016, but that dream was now unraveling as I read these anecdotes. Sure, there were a few people chiming in that their scores went up. But they seemed to be the exception, not the rule. Suddenly I was left wondering how bad my credit score would be impacted once I was now being compared to this new “bucket” of individuals.
So I anxiously awaited the day my bankruptcy would fall off my credit report. And when that day came, here’s what I was greeted with in my CreditKarma dashboard:
I can’t even begin to describe the relief I felt at this moment. So what’s the deal, why are so many people on credit forums reporting a negative credit score change?
There are no mythical “buckets”
First, be careful about taking anonymous forum posts as voices of authority. The guy that was claiming he had the answers for why people were seeing lower scores after their bankruptcy fell off clearly has no idea what he’s talking about. I’ll admit, it got me thinking, but in the end I was skeptical this was in fact true.
The truth is credit scores are credit scores. There is no bucket for the black sheep that declared bankruptcy and a separate bucket for those that were responsible with their credit. That just wouldn’t make sense.
Credit scores are impacted by different factors from public records to length of credit history and credit inquiries. That allows all scores to be compared to one another in one bucket.
Here’s what likely happened
It’s a pretty solid assumption that those who have filed for bankruptcy aren’t great at managing their credit. It’s also likely that filing for bankruptcy doesn’t change these people’s habits. Sure, in some cases it hopefully does (like mine). But how many people do you think file for bankruptcy and immediately go back to living beyond their means as soon as they have the chance?
Well, some data from the United States Court can help shed some light on that. There were 301,103 chapter 13 bankruptcies filed in 2014. Of that number, 34% were repeat filers! That means over one-third of those bankruptcies were people who had filed bankruptcy in the last eight years.
The numbers don’t look much better for years I could find data. In 2013, 33% of all chapter 13 bankruptcies were attributed to second time filers. That number was slightly lower in 2012 at 30%, and a bit lower at 28% for 2011. But that’s still incredibly high. Clearly, people aren’t learning their lesson.
And while most people file chapter 7 bankruptcy, it’s likely safe to assume there’s little change in the numbers. What’s even more frightening to think about is these are the number of people that treated their finances so poorly they had to file bankruptcy a second time.
How many people do you think are in poor financial shape and haven’t filed a second time? Also note that these are repeat filers from the last eight years. That says nothing of those that waited more than eight years to file bankruptcy again.
Why credit scores really dropped
If you haven’t already figured it out, here’s what I’m getting at…
All those people posting in forums broadcasting cautionary tales of their credit score dropping after their bankruptcy removed likely never changed their habits. Chances are these people continued abusing credit cards and living off debt, but did not become repeat filers.
A bankruptcy removal from your credit score is not an automatic green light for a huge credit bump. If you continue taking credit for granted and abusing it after your bankruptcy, you’re going to be in for a rude awakening when that bankruptcy finally falls off your credit.
Instead, shape up! Reform your life and start rebuilding credit like I did and be rewarded with an 803 credit score when your bankruptcy is finally removed (true score was later pulled for a mortgage refinance and came in at 803!).
But does this explain everything?
Listen, I’m not claiming to be a credit expert. I can only share my story and what I did to rebuild my credit. I knew I never wanted to be a slave to my poor credit score so I got with the program. Does it ever make sense that a bankruptcy removal would result in a lower score? I really don’t see how, but again… I’m not an expert.
Maybe accounts that were included in the bankruptcy were also removed. That could drastically affect the average length of credit, one of the factors that your score is based on. Maybe these people had some recent derogatory marks that were the real culprits of their score drop. I have no clue. The point is, your score should definitely go up substantially if you were responsible rebuilding your credit after bankruptcy.
I hope that by showing you my real life example it can serve as a beacon of hope for those waiting for their bankruptcy to be removed. I sure would have appreciated a detailed answer like this rather than depressing forum posts from years ago.
If you’re rebuilding your credit, start monitoring it for free with CreditKarma. It’s a lifesaver, and I don’t know what I’d do with out it.