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What Will Bankruptcy Do to My Credit Score?

If you are making the decision whether or not to file for bankruptcy, chances are that your credit has already taken the back burner. The important thing to remember now is that bad credit can be fixed. Still, you may want to find out what will happen should you decide to file for bankruptcy.

It Won’t Hurt as Much as You Think

You may be surprised to find out that, in many cases, bankruptcy doesn’t harm the credit score nearly as much as one would expect. The reason why is because most people who are in the type of financial situation that goes along with bankruptcy usually have a fairly poor credit score to begin with, and filing for bankruptcy won’t harm their credit nearly as much as they already have by making late payments and carry large balances on their credit cards. If you should file for bankruptcy, you could easily bounce back and have a credit score worthy of a low rate as long as you are willing to put in the work over time.

Filing May Even Help

In fact, bankruptcy could even help you with your credit history over time. When the credit bureaus calculate your credit score, they compare you to those who are in a similar financial situation. Fair Isaac (the company that calculates the FICO score) has set up 10 different groups of consumers that they use to calculate scores, and one of these groups are those who have filed for bankruptcy. Therefore, if you are able to prove over the next ten years that you can handle your money and your credit better than a majority of people in your group, you should see a major difference in your credit score. (I say ten years because that is how long the bankruptcy will stay on your credit report.)

The Come Back

When you have the resources to maintain your finances once again, it can be very easy to raise your credit score, even after filing for bankruptcy. Use the following tips as a guideline to get your financial life back on track.

  1. Control your accounts – Double check so you are sure that all of the accounts you included when you filed for bankruptcy are listed to be so. These accounts should also show a $0 balance if you filed for Chapter 7 bankruptcy. If you continue to show that you are late on any payments, your credit score will continue to decline.
  2. Get a few new credit cards – Get a secured credit card if you must. With this type of card, you will have to put down a deposit to cover the balance on the card, but make sure you use it wisely. Don’t buy anything you can’t pay off right away, make all of your payments on time, and try your best not to carry a balance on the card at all. After a few months of good behavior, you may be able to move on to an unsecured credit card and continue to build your credit from there.
  3. Get a loan – A few months after you file for bankruptcy, you should be able to start looking for an auto loan or mortgage that will help you prove that you can be trusted when it comes to money. Again, make sure you will be able to make all of your payments on time so that you don’t harm your credit report more.

Elise Brown is an author who writes guest posts on the topics of business, marketing, credit cards, and personal finance. Additionally, she works for a website that focuses on educating readers about quick payday loans.

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