File Bankruptcy to Raise Your Credit Score?
Trying to raise your credit score can be very difficult, take a long time, be very expensive, and many times just cannot be substantially raised by struggling to pay off your debts. However, if you otherwise need bankruptcy protection to stabilize your financial life, it could help you raise your credit score much more quickly.
Let me explain.
The basics that determine your credit score are: (1) Your payment history; (2) The amount of debt you owe; (3) How close you are to your credit limit on credit cards and loans; (4) Searches for new credit; (5) and types of credit used. There are other issues that can affect your score, but these are the main ones:
(1) According to Equifax, late payments can stay on your credit report for 7
years. Foreclosures and accounts turned over to collection agents for 7
years. Repossessions can also stay on your credit record for 7 years.
(2) The amount you owe relative to your credit line can negatively affect
your score. Owing more than 30% of your credit limit on any one
account can lower your score.
(3) The amount you owe relative to your income to debt ratio can affect
whether creditors will make a loan. It can also influence the interest rate
if credit is extended.
(4) If there are several credit inquiries that show you have recently tried to
get new credit to buy vehicles, furniture etc., they can negatively affect
(5) Whether you owe unsecured debts, secured installment debts, tax debt,
and child support debts can all affect your credit score.
Unless you have enough extra money above your basic living expenses to pay off your outstanding debt you can be sure that your credit score will not automatically go higher. Most people’s credit score continues to get lower as long as the unpaid bills continue to mount.
No one should file a bankruptcy case just to improve their credit score. However, if you need bankruptcy protection and are eligible for a bankruptcy case, you may be able to help your credit score in the long run with a bankruptcy.
How could this be?
A Chapter 7 bankruptcy case wipes out most, if not all, of a person’s debts and is usually over in less than 4 months. A Chapter 13 bankruptcy case is a payback plan where you pay back all or some of your debts usually in a 3 to 5 year period. If you get a discharge in a Chapter 7 or Chapter 13 bankruptcy, the discharged amounts of even large accounts will be marked on your credit report as “Included in a Chapter 7 bankruptcy” or “Included in a Chapter 13 wage earner plan.”
In 2010 Fico released information that showed in a mock scenario, a person with a 780 credit score would have an approximate credit score between 540 and 560 after their bankruptcy. In the same scenario they estimated that a person with a 680 credit score would have a score between 530 and 550 after a bankruptcy. The higher the score the larger the drop.
However, both ended up within 30 points of each other. If your credit score is lower than 680 it should still end up in the 530 to 560 range after your bankruptcy is discharged.
A spokesman for Fico Scores has stated that after a bankruptcy, a person’s score is determined on how he or she compares with other bankruptcy filers. They see that as a fairer comparison then comparing you with a person that has a “rosy perfect report.”
He said that as a result there are variations of credit scores after bankruptcy. Some have very good Fico scores, some had very bad Fico scores and some were in between. He also said that although you cannot get the perfect score of 850 as long as your bankruptcy shows on your credit report, you can obtain a credit score in the 700s.
At the Rhymer Law Firm we not only help you get rid of your debts through bankruptcy, but we also help our clients rebuild their credit score after their bankruptcy discharge. We offer a service that other bankruptcy attorneys in your area do not have.
Because you will eventually need credit to buy a car, rent an apartment, buy a house, or furniture, you need to think about your credit future. More and more employers are now running credit checks on potential employees.
In our research, we discovered a few things:
(1) If you take immediate steps to start rebuilding your credit score after a
bankruptcy, you can transform your credit score in 12 to 24 months after
your bankruptcy has been discharged.
(2) You should take these steps for your and your family’s best future
interests. Too many people decide to wipe their hands clean of credit.
As time passes, instead of having poor credit, they have no credit.
Unfortunately, no credit is just as bad as no credit.
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