Filing a petition for bankruptcy relief is not usually the first thing people consider when trying improving their credit score. In this short article, several financial factors are considered that can help you make sense of credit score issues and how you can work to build good credit after bankruptcy. First, let us look at how credit scores (“FICO Scores”) are calculated. The most important factor is your payment history and whether you have paid your credit accounts on time. In a close second place, the amounts owed on credit accounts, and if you are maxed out on credit cards, that can hurt you. The length of your credit history, types of credit you are using and how new your credit score is are three additional factors. For more information on FICO Score calculations, please visit this FICO Score site.
The ability to make timely payments on reasonable amounts of debt is important to a positive FICO Score. If you do not earn enough income to pay your credit cards on time, every time, you are risking damage to your credit. Likewise, if the debt amounts are so high that your income will only allow you to make minimum payments, your credit score will suffer. If you take advantage of bankruptcy protection and eliminate credit card debts you cannot pay, you will likely be able to better pay your regular bills, like car and housing payments on time. Nevertheless, if you file a petition for bankruptcy protection, will that affect your credit score?
It is tough to say how much a bankruptcy will affect the credit score because there are so many variables in the equation. Notwithstanding, FICO released information in 2010 regarding credit mistakes and their affect on credit scores. The hypothetical scenarios FICO used showed the higher credit scores were more affected by bankruptcy. For example, a 780 score could be reduced up to 240 points where there were only 150 points taken off a 680 score. At the end of the day, most scores ended up around 540. The reality is most of the people who seek bankruptcy protection already have challenged credit and their scores will only improve after bankruptcy reduces the amount of debt and monthly bills.
With less monthly bills to pay, people who took advantage of bankruptcy discharge and reorganization using Chapters 7 or 13 have an easier time paying bills on time. When you pay bills on time, the most important factor in your FICO score, your score will slowly but surely increase. Most professionals will tell you that the bankruptcy is not as important financially, as what you do with your credit and bills after the bankruptcy.
After bankruptcy, rebuilding credit is easy if you work hard and pay attention to how the system works. Secured credit cards, credit unions and some smart budgeting makes it very possible to establish credit after bankruptcy and buy a home and a car. For more information please read our blog article, Credit Unions: Offering members opportunities to easily and affordably earn positive credit scores.
Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start. To keep in touch and read about consumer finance news and stories you can Like the firm’sFacebook page and Follow Joseph Wrobel. Ltd. onTwitter. If you need immediate legal assistance, please call Joseph Wrobel, Ltd. by calling (312) 781-0996 to talk to an attorney.