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Bankruptcy and Your Credit Score
YOUR CREDIT SCORE: HOW IT'S DETERMINED & HOW BANKRUPTCY AFFECTS IT Your credit worthiness is determined by several factors, and one important factor is your credit score, which is derived by comparing the information on your credit report to those of other people. Lenders and creditors use all of the information on your credit report to derive a credit score on you. A credit score is a number used to predict your willingness and ability to repay new credit. The most widely used scoring system is known as the Fair-Isaac Corporation (FICO) Credit Score. This score ranges between 350 and 850. A FICO score is based on information found within your credit report. The 5 basic categories in order of importance are: Payment History - refers to payments being made on-time or late, judgments, bankruptcies, collection accounts, and so on. Outstanding Debt - examines the number of outstanding balances, average balance, and ratio of total balances to total credit limits on revolving debt (i.e. credit cards). (Continued Below) Please take a moment to consider your debt relief options Bankruptcy Chapter 7: Discharges all debts completely, no monthly payments. Read More | Online Qualification Test | Comparison | Calculate Savings Debt Negotiation: Repay about 50% of debts*, dramatic monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings Bankruptcy Chapter 13: Repay about 85% of debts*, no monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings Credit Counseling: Repay 100% of debts, some monthly savings. Read More | Online Qualification Test | Comparison | Calculate Savings Credit History - refers to how long you have had your oldest account. Pursuit Of New Credit - examines when and how many inquiries and new accounts there are. Types Of Credit In Use - refers t the number of reported accounts in the various credit card categories (bank cards, travel & entertainment, and so on). Other factors that lender look at to determine who is a good credit risk are: Education Level - The higher the better. Length Of Time At Your Current Residence - If you move around a lot, you lose points, but if you relocate for a better job and show your income is higher, then that helps you get points. Length Of Time At Your Current Job - The longer you have been at your job, the better risk you appear to be. Homeowner v. Renter - Homeowners are considered better credit risks than renters. Your credit score is determined by comparing your credit to those of other people in the general population. Here's an important point about your FICO score and how bankruptcy affects it: After you file bankruptcy, your credit is compared only with those people that have filed bankruptcy. So, if you manage your finances well, you can increase your credit score higher and faster than you would be able to do outside of bankruptcy. This should not be seen as a reason to file bankruptcy. It is pointed out to counteract the misinformation about the effect of bankruptcy on your credit. Bankruptcy And Your Credit Report Many people think that bankruptcy will remain on their credit for the rest of their life. The truth is, bankruptcy only lasts for a maximum of 10 years. This is only 3 years longer than other negative credit, so in the big picture, it's not much worse. Assuming you keep the rest of your credit clean after bankruptcy, you'll likely qualify for credit cards, car loans, and even a mortgage, in as little as 12 months. Some people who keep their credit clean before they file for bankruptcy can qualify for new credit immediately. Before filing for bankruptcy, you need to know how it will effect your credit. By doing your best to minimize the negative effect on your credit, you can qualify for new credit in as little as 12 months. Also, the fact that bankruptcy can immediately eliminate past due debts, rather than letting them drag out for years, can actually be better for your credit, initially. But, in most cases, a bankruptcy will eventually end up as a negative mark on your credit. In an ideal situation, after filing bankruptcy, it should be the only negative item left on your credit report. One bankruptcy, vs. 10 or 20 negative tradelines should equal a higher credit score and improve your chances of qualifying for new credit. A Chapter 13 bankruptcy usually remains for 7 years and a Chapter 7 bankruptcy will remain for 10 years. It's also important to note that a bankruptcy case will remain on public record indefinitely. Another issue with bankruptcy is that more and more companies are pulling credit reports and public records before hiring new employees. A standard employment background check includes checking credit, public records, and your criminal background. Having a criminal background is an obvious problem, but what people don't realize is that a bankruptcy or negative credit report could cost them a new job. This is why credit repair is so important after bankruptcy. By understanding how bankruptcy can impact your credit report, you can be prepared to focus on the positive effects, while minimizing the negative. Once your bankruptcy is dismissed and the negative credit has been marked as settled or closed on your credit report, it will just be a matter of time until your credit begins to imporve. Although bankruptcy will likely be a blemish on your credit report for several years, bankruptcy should immediately improve your financial situation. By eliminating your past debt, you can move on with your life, without the constant worry of paying bills or falling deeper in debt. Ultimately, bankruptcy is meant to give you a fresh start and when done correctly, your life should be better after bankruptcy. You should have an easier time paying your bills and turning your bad credit into good credit. Those who suffer after bankruptcy usually continue to make wrong financial choices, receive bad bankruptcy advice, or may have chosen to file without a bankruptcy attorney. Although bankruptcy is not always the best option, it's something you should consider when you have excessive credit card debt, or when you feel like you're in over your head. Bankruptcy Credit Score: How a BK Affects Your Credit Report... Related Articles Bankruptcy and Credit Score : Detailed article about how a BK affects credit scores Effect of Bankruptcy on Credit Score : Article about the effect of a bk on your credit score and report How Bankruptcy Affects Credit : Article about the impact bk has on your credit worthiness and rating Credit Report After Bankruptcy : Article about what you may see on your credit report after filing a bk How Long Does a Bankruptcy Stay On Your Credit Report : Explains how long you can expect a Chapter 7 or Chapter 13 bk to remain on your credit report Bankruptcy and Your FICO Score : Discusses the effects of a bk on your FICO Score |
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