Many people assume that when they file for bankruptcy, their credit score is ruined, and they won’t be able to ever get credit again. Fortunately, this is completely false! Many people filing bankruptcy are able to get out of debt and their credit score goes up.

Unfortunately, if you read articles online, you will find a lot of false information about how bankruptcy works and people who claim that it will impact your credit score negatively.

What is a Credit Score:

A credit score is a number that decides how likely you would be able to get credit. Lenders use credit score to determine if they should extend credit to you. The most common type of score is called a FICO score. Typically this score will range anywhere from 300-850. A FICO score is calculated by looking at many different Factors. These include:

• your payment history
• the amount of debt you have
• the different types of credit lines you have
• the length of time you have had credit
• when you opened up the last account

Generally, people who have a high FICO score have low debt and a good payment history. While people with low scores tend to have late payments and high debts. Individuals who are struggling to repay their debts can use bankruptcy to help get out of debt and start over. Many people assume that filing for bankruptcy means that their credit score will be ruined and they won’t be able to take out new credit cards for a while. This isn’t true, most people are able to get new credit cards immediately after their bankruptcy.

How Will Bankruptcy Affect My Credit Score?

Many people who file bankruptcy are surprised to see their credit score jump a few points after filing. The reason this happens is that most people filing bankruptcy have high debt and late payments. When a person files bankruptcy, their debt gets erased. This allows their debt to be wiped out so that they no longer have high debt. When credit scores calculate as person’s debt-to-income ratio, their credit score will increase because they have no more debt. So, for individuals who already have low scores before filing a bankruptcy, it could actually help their credit scores improve.

Moreover, because people who file bankruptcy have no debt, lenders see them as less of a risk vs someone who has a lot of debt. In turn, after a bankruptcy lender may be more inclined to let bankruptcy filers borrow money because they have no debt and can’t file another bankruptcy for another 8 years.

How Can Bankruptcy Help Me Increase My Credit Score?

While bankruptcy isn’t a decision to take lightly, it is there to help individuals get out of debt and start over. Individuals with delinquent accounts on their credit report will be able to wipe their debt clean and start over. Debts that are discharged in bankruptcy can’t be reported as a “delinquent” account on a credit report. Instead, credit bureaus usually report this debt as “discharged” which will help raise an individual’s credit. A bankruptcy discharge can give an individual a clean slate to start over and get their finances in order. Many people who file bankruptcy are surprised to learn that they can have perfect credit within two years of filing.

For individuals who are behind on debt, bankruptcy is a good way to get a clean slate, start over, and start getting their finances in order. Individuals who file bankruptcy, can start practicing making on time payments, paying off their balances in full every month, and practicing good credit spending allowing them to increase their credit score. Moreover, they can start saving for rainy days so that they no longer are living paycheck to paycheck.

To learn more about how bankruptcy can impact your credit score, you can contact us today at 973-979-9078 or read another article here.