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Bankruptcy and Your Credit Score

Your credit score can have an impact on many different aspects of your life. It can impact your employment, living arrangement, and even your relationships. It is no surprise that for those dealing with debt related problems, credit score is often a concern. The difficulty in addressing impacts on your credit score is that everyone has a different credit history, and translating what and how different factors impact your credit score can only be fully uncovered by a credit bureau that is assigning your credit score. For an outsider to know exact impacts of all parts of your credit report can be rather cryptic to figure out.

How Does Bankruptcy Impact Your Credit?

It really depends… Each credit profile will be impacted differently depending on your existing credit record. There is some speculation that your credit score will go down less if you already have a low score and it will go down more if your credit score is high. Either way, a bankruptcy will definitely have a negative impact on your credit report and credit score. The bankruptcy will appear on your credit report for 10 years, but this definitely does not mean that you won’t be able to get any credit for 10 years.

What Is More Important To Know About Impact to Credit Scores?

Rather than be concerned with simply the impact of a bankruptcy on your credit, you need to also consider these factors:

1. What will happen to your credit if you don’t file for bankruptcy?
Late payments can also impact your credit report for 7 years. If you are racking up late payments for years, it can take longer than a bankruptcy filing takes to come off your credit report.

2. What do you need your credit for in the future?
There are programs for different uses of your credit even if you have a bankruptcy on your record. For example, many car/auto finance companies have the ability to finance you for a car or other vehicle even if you have a bankruptcy although the terms may be different than if you didn’t have a bankruptcy. You may just need to save a little more to put down a larger down payment and limit exposure to high interest rates. If you need to buy a home in the future, talk to your mortgage broker to find out what time frame you need to wait until you can qualify for a home loan if you have a bankruptcy on your record. Some banks can offer home loans in as little as 3 years after a bankruptcy. Each of these examples illustrates that a bankruptcy does not make things impossible. You just need to be educated on time frames so that you know what to expect for your future planning.

3. Is it more important to discharge debt or preserve your credit score?
If you credit score has already been severely impacted by past due debt, it may be a higher priority to discharge the underlying debts in order to stop the vicious cycle of poor credit. A bankruptcy can put an end to the debt and stop the bad credit cycle even though it can have a temporary negative impact. In the long run, you may be in a better situation.

It is important to consider long term factors and specific future plans when you are evaluating impacts to your credit score and not just the isolated credit score alone. A broader perspective can help you make the right decision for you and your family’s future.

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