Those who are considering applying for bankruptcy, are advised to first meet with an attorney. We want to assess your financial situation first, to confirm that it will be the best option for your current circumstances and future. Of course, when people file for bankruptcy they have zero intent to sink back into that level of financial hardship ever again. An attorney will do everything in their power to see that you are prepared for this next step.
In the midst of wondering whether bankruptcy is right for them, they may wonder how much their credit score may be impacted. Here we talk further about bankruptcy and how what comes up on a person’s credit report may change.
How Credit Scores Are Calculated
A company called the “Fair Isaac” developed an algorithm for what a person’s credit score will be, along with several influencing factors. Credit scores can range anywhere from 300 to 850, where 700 and up is considered good or great standing. Your attorney can run your credit report to see what information pops up for you, and how your number may go down temporarily after filing for bankruptcy. Based on Fair Isaac, these factors contribute to overall score:
- Amount Owed (30%)
- New Credit (10%)
- Types of Credit In Use (10%)
- Payment History (35%)
- Length of Credit History (15%)
What Happens After Bankruptcy
As an attorney may tell you, any negative details in a credit report can have an effect on the total score. So, if you were behind on a payment this may be reflected in the complete report. Additionally, have a significant amount of debt compared to the monetary limit on credit cards or accounts can be a problem.
We understand that before considering filing for bankruptcy, you may have maxed out your credit cards or found it difficult to get ahead with so much debt looming over you. It is difficult to predict exactly how your score may change after the bankruptcy status gets placed on your report. Typically, those with average or above-average scores find that their number decreases to around 550 after receiving their bankruptcy discharge.
Future Credit Opportunities
Ultimately, it’s not only a person’s credit score that may be impacted due to bankruptcy. Since this status may be on your report for up to 10 years, it can decrease your credit card and loan approval odds. To ensure that you stay on the right track, an attorney may suggest visiting with them if you are thinking about making a big purchase of some kind while still operating under a bankruptcy chapter.
The biggest thing we want clients to take away from a consultation, is that even if you do have to file for bankruptcy in order to get out of the sticky financial situation you are in, it isn’t forever. To find out more about how bankruptcy can benefit your finances in the long-term, please contact a bankruptcy lawyer today.