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May 9, 2011

The Effect of Bankruptcy on Credit Scores

"People who are mired in debt often dread the thought of filing for bankruptcy protection and the effect it will have on their credit scores. Many in this situation fear that they will never be able to obtain a loan, get a credit card or that they will be turned down for jobs, all because of a poor credit score.

As a matter of course, bankruptcy can have a serious effect on your credit score. It can lower your score by nearly 240 points. How much it will drop will depend on the type of debts you have and your prior credit history. Essentially, someone with a 680 credit score may suffer a greater score drop than someone with a 520 score. Those seeking bankruptcy protection usually have poor credit scores to begin with, so the drop in credit score may not be significant.

Another consideration is how Fair Isaac (the company that develops credit scoring formulas) grades consumers' credit scores. Bankruptcy filers are commonly compared to those in similar financial straits.

The silver lining is that those who discharge their debts through bankruptcy can achieve a favorable credit score within two years after filing. There are several things you can do to help establish the new credit history that accompanies your fresh start. For instance, bankruptcy filers receive a number of credit card offers. Having a few months of on-time payments on a secured credit card or low balance card can help build a new history and increase your credit score. Also, being listed as an authorized user on another person's charge account can help. While you will not be obligated to make payments on the account, you can reap the benefits of their responsible credit use.

Regardless of your circumstances, bankruptcy can be a new beginning. For additional information and advice regarding your specific situation, contact an experienced bankruptcy attorney."


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May 9, 2011 in Current Affairs | Permalink

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Comments

Rebuilding your credit after bankruptcy can be tough. The two biggest influences on credit are usually a mortgage and an auto loan. You likely won't get a mortgage right out of the gate since mortgage standards have been honed in so much lately but, you are very likely to find an auto loan, especially if you have a decent income.

Posted by: Auto Loan After Bankruptcy | May 10, 2011 7:43:51 PM

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