Credit Score and Effect on Credit
Stop Worrying About Your Credit Score
Many people are concerned about filing for bankruptcy because they fear the impact bankruptcy will have on their credit score. Unfortunately, this concern is often misguided. We believe that worrying about the effect bankruptcy can have on your credit score can prevent you from taking the right financial step to deal with your debt. While bankruptcy can hurt your credit sometimes, especially in the short-term, filing can often actually help you to begin improving your credit score and rebuilding your credit record.
Our South Florida bankruptcy lawyers can provide details on how bankruptcy will affect your credit score and whether bankruptcy is the best choice in your specific situation. Leiderman Shelomith Alexander + Somodevilla, PLLC is a full-service bankruptcy and debt relief firm, so we offer assistance to consumers filing for Chapter 7, Chapter 11 and Chapter 13 bankruptcy, as well as help to clients who want to deal with their debt problems without a bankruptcy filing. Our goal is to help you get a fresh start by providing affordable representation, so we'll advise you on the best steps you can take to begin the path of earning a great credit score again.
How Bankruptcy Alters Your Credit
Your credit score is determined by different factors, including:
- Your payment history. Late payments count against you. The later the payment, the worse the effect on your score. Creditors report at 30 days late, 60 days late, and 90 days late. Charge-offs, or situations where creditors have given up on collecting, are also reported.
- Public records and judgments. If you have a foreclosure, bankruptcy, or court judgment against you, this is factored into your credit score.
- The amount of credit you have utilized. If you have maxed out your available credit, this can damage your score. Ideally, you should not use more than 30 percent of credit available to you.
- The number of inquiries on your report. When you apply for new credit, an inquiry is posted and stays on your report for two years. Fewer inquiries are preferable over many inquiries.
- The diversity of your credit. A variety of debts, for example, revolving credit and student loan or mortgage debts, is preferable.
When you have a significant amount of debt or you are not making payments, your creditors may be reporting every month that your cards are maxed out and that your payments are late. Multiple creditors may begin to pursue litigation against you if you owe money to different people, and if not defended, may obtain judgments. All of these judgments are going to show up on your credit report and impact your final score.
The reports of late payments, maxed out credit cards and judgments are going to keep coming until you deal with your debt. If you file for bankruptcy, you put a stop to all of it. You'll have the bankruptcy on your record, but you will not continue to get negative information posted month after month. Instead, you'll deal proactively with your debt and you can begin rebuilding.
Rebuilding Credit After Bankruptcy
Rebuilding credit after bankruptcy takes less time than you think. You should be able to get a secured credit card right away, and you can start making small charges on that card and paying it off in full. No more negative marks will be posted because all of your debts will have been discharged or have otherwise been dealt with in bankruptcy, so the only new information being posted on your report will be about your on-time payments for your secured card.
As time passes, your bankruptcy will become less important until it drops off your credit report entirely. Your new payment record of on-time payments will matter more and more, and your credit score will improve. Most people can get a home loan within two years of bankruptcy, especially through the FHA, and you should soon be able to get a car loan and an unsecured card, as well, if you need one.
Getting Help from Our South Florida Bankruptcy Lawyers
You should never make assumptions about how bankruptcy will affect your credit or your finances until you have talked to the professionals who know how bankruptcy works. Leiderman Shelomith Alexander + Somodevilla, PLLC can evaluate your specific situation and advise you on whether bankruptcy is a good option for you. Contact our South Florida bankruptcy attorneys today to learn more. We represent clients all throughout the Southern District of Florida, focusing on Miami-Dade, Broward and Palm Beach Counties, including the cities of Miami, Fort Lauderdale and West Palm Beach.