Meta Title: Bankruptcy May Actually Help Your Credit Score
Meta Description: Wondering how filing for bankruptcy could help your credit score? You’d be surprised!
Keywords: Filing for bankruptcy, credit score
Bankruptcy May Actually Help Your Credit Score
Bankruptcy laws were formed to help relieve you from creditors by giving you a fresh start to your finances. While there is no denying that this fresh start comes at the cost of a significant hit to your credit, bankruptcy does have some good long- and short-term effects on your credit.
Depending on your credit score, assets, and current financial situation, you can benefit from bankruptcy.
What is a Credit Score?
To put it simply, a credit score is a number that portrays your credit history and decides whether or not you will falter on a debt. Lenders view this score whenever you ask for debt so that they can decide whether or not they want to give you a loan and what interest rate they want to charge.
The most common type of credit score is FICO scores. These can fall anywhere between 300 to 850. A FICO score depends on the information present in your credit report. This includes:
- Your history of debt repayment
- The debt you currently have lined up, including your debt-to-credit ratio
- Different types of credit that you might have obtained
- The amount of time you have had credit for
- Whether or not you have new credit that needs to be paid.
A high FICO score is an indication that you are good at managing your finances. However, a subpar FICO score shows that you are negligent with your credit payments, have a number of unpaid debts in line, have recently gone through a foreclosure, have filed for bankruptcy, or experienced other issues in the process of repaying debt.
How Filing for Bankruptcy May Help Your Credit Score
Getting Rid of Delinquent Accounts
There’s nothing worse than making late payments, as these will wreck your credit score. However, filing for bankruptcy will help remove a large percentage of the delinquent accounts that you may have on your credit report.
This means that once you discharge these debts, they do not read as delinquent on your credit report. Instead, they appear as “discharged.”
Changing the Debt-to-Credit Ratio
An individual’s debt-to-income ratio is regularly considered by credit bureaus. This is why if you have more debt as compared to the amount you earn, your credit score will most likely be low.
However, if you manage to remove some of your debt by filing for bankruptcy, your income will stay the same, and your creditworthiness has good chances of improving.
Allow Yourself to Start Fresh
Debt can be crippling. It can make people feel trapped and suffocated, especially if your debt has reached an unmanageable amount, and your income does not match anywhere close to it. During these times, instead of letting yourself drown in hopelessness, it is essential to realize that filing for bankruptcy may actually give you a fresh start.
Once you get a fresh start, you can start regulating your spending and pay close attention to finding ways to improve your credit score.
By taking advantage of bankruptcy protection in your city, you may start to notice an improvement in your credit score. To find out more about Chapter 7 and Chapter 11 bankruptcy, click here (insert link of the website).