If you are struggling with an excessive amount of debt and considering filing a personal bankruptcy, one of your biggest concerns is likely to be the potential impact on your credit rating. While you may have heard stories about how bankruptcy ruins your credit rating and remains as a bad mark on your credit report for 10 years, the truth about the actual impact of bankruptcy on your credit may surprise you.
Bankruptcy and Your Credit
As bankruptcy involves discharging debts and offering creditors less than the actual amount owed, this obviously does not earn you good marks in terms of your credit rating. At the same time, dealing with the issue head on is preferable to struggling with missed or late payments and creditor collection calls over the course of several years.
Your credit rating, or FICO score, is based on a variety of different types of information, and it factors in both positive and negative information from the three major credit reporting agencies. The following lists the percentage each type of information carries in determining your credit rating:
Based on the above, having a large amount of outstanding debts and making slow or no payments does significant damage to your FICO score. Most people do not go into bankruptcy with a strong credit rating. Additionally, even though it may lower your score by 100 points or more, taking the steps to address the situation now is likely to have a more positive effect in the long run.
Your Credit After Filing Bankruptcy
Bankruptcy is designed to give you a fresh start at rebuilding your credit. While your filing may remain on your credit report for up to 10 years, the method shown above for calculating your credit score shows how establishing new credit and making prompt payments could easily offset any negative effects.
Once your bankruptcy is filed and your debts have been discharged, BankRate advises getting a copy of your credit report to ensure all debts have been properly addressed. Your next step should be obtaining a secured credit card to begin reestablishing your payment history.
Once you have made several months of payments, you can try applying for an unsecured account. You may be considered a subprime borrower at first, meaning that banks and credit card companies can charge you higher interest rates. Provided you do not overextend yourself and make regular payments, you should see your credit score begin to substantially increase in as little as a year.
How Our Bankruptcy Attorneys Can Help
Being deeply in debt and unable to make payments is already having a negative impact on your credit rating. To find out how filing for bankruptcy could help in your situation, call or contact the Law Offices Of Eric G. Zelazny online, and request a free consultation with one of our talented Tinley Park bankruptcy attorneys today.