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What really happens to a credit score after bankruptcy?

Bankruptcy is not something to rush into, especially if there are other options available to you. However, if you have exhausted your alternatives and your creditors refuse to negotiate, you may feel you have no choice but to file for bankruptcy to find relief from your debt burden. Like many in California, you may be wondering how this step will affect your credit rating.

Any agency that extends credit will look at your credit history. While you may vow never to return to this place of financial struggle and frustration, at some point, you may want to consider buying a home or car. A good credit rating will be important, and you may hesitate now to seek the relief you need because you fear a bankruptcy can damage your credit score.

Your credit rating and bankruptcy

Your credit score is comprised of several factors fed into a complex formula called the Fair Isaac Company score, or FICO. FICO considers the following factors:

  • The type of credit you have, such as secured or unsecured
  • The amount of new credit you have acquired
  • How long you have held lines of credit
  • How much you still owe to your creditors
  • Your history of paying on time or making late payments

The amount of money you owe and your payment history count for over 60 percent of the FICO score. If you are in a situation where you are considering bankruptcy, these two factors are likely already negatively affecting your credit score. If your score is already low, a bankruptcy may not affect it that much. In fact, many people emerge from bankruptcy with a credit score around 550.

The score is not the problem

Since the bankruptcy itself appears to do little to an already low credit score, why is everyone worried about their credit reports? The reason is that having a bankruptcy on your credit report, whether it lowered your score or not, can cause any future creditors to deny you credit or to charge outrageous interest. This is a consequence you will have to weigh when deciding whether bankruptcy is the best option for you.

Rebuilding your credit is possible, but it takes time, patience and consistent effort to avoid falling back into the cycle that led you to overwhelming debt. Your first step is to decide if bankruptcy is the best option for you. Seeking an unbiased opinion from an experienced attorney is a wise move.

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