How does bankruptcy affect my credit?
Some people avoid filing bankruptcy because they are afraid of the way it could affect their credit rating. Yes, it is going to have a negative impact on your credit score, but from that point forward, it is completely up to you which direction your credit goes. In fact, that is one of the biggest reasons that those who file bankruptcy do so in the first place. Hardly anyone wants to admit when his or her debt has become unaffordable. Yet, in some cases that is really all there is left to do. Otherwise, you could spend a lifetime trying to catch up on things that are accumulating interest faster than you can pay it.
FICO Scores and Bankruptcy
The change in your existing FICO score after you file bankruptcy depends on several things. What was your score before you filed? How many accounts did you have to include in the bankruptcy? What kind of accounts were they? Today, creditors have access to so much information that they don’t rely on the credit score alone, so it does make a difference whether you filed bankruptcy on frivolous accounts that you simply couldn’t afford or if you were hit with medical bills that sent your budget so far under you couldn’t recover from it.
What Affects My Credit Score Most?
FICO scores change when you make late payments, make payments on time, open a new line of credit, apply for a new line of credit, use all of your available credit, or maintain a running balance with timely payments. When you can’t make your payments on time, your score is going to drop every month. By the time you file bankruptcy, there may not be much left to work with, so your score won’t drop much more after you file. However, if you have made timely payments and managed your credit wisely, you may have a high score, which will take a significant hit when you file.
Starting Over After Bankruptcy
The difference in your credit score when you continue to make late payments versus when you file bankruptcy is that bankruptcy has an end in sight. Once your score drops after the bankruptcy is discharged, you know exactly where you are building from. However, if you don’t file and you are consistently late on even one of your accounts, you can expect your score to keep dropping with no idea when and where it might finally stop.
After your bankruptcy is discharged, you are immediately going to have the opportunity to start rebuilding your credit because creditors will know that you can’t file again anytime soon. This could mean they might start sending you offers almost the same day as your discharge. The key to success with your credit is to accept and manage those offers wisely, never taking out more credit than you can manage. In fact, as you try to get on your feet again, it’s best to only use credit that covers expenses you would have to pay every month without the credit. In this way, you can build your credit without spending any more than you normally would.
Take Your Time and Start Anew
In most cases, credit scores are already low and credit ratings have already been damaged by the inability to make payments on time. For many people, filing bankruptcy is their only shot at starting fresh and building a positive credit rating.