How Will a Bankruptcy Effect my Credit Score?
What Credit Score are you Protecting?
FICO credit scores range from 300-850, with 723 being the median. Scores below 600 are considered bad (high risk borrowers), 620 being the dividing line between good and bad, and above 700 being excellent. Scores are based on payment history, outstanding debts, credit history, new credit, and credit in use. In addition, Experian’s PLUS score system ranges from 330-830, and the Vantage Score ranges from 501-990. Before continuing, we need to address the question; will bankruptcy effect my credit score? The answer is yes, but not forever. I’ve made the following claim before:
“It is a Damn shame that more Americans know their credit score than their cholesterol level.”
The Scenario: Months behind in payments, nearing a foreclosure, and little if any hope for a financial recovery anytime in the foreseeable future, client is considering filing for bankruptcy protection. Because of the “brainwashing” that we’re all subjected to, client’s concern is how this might effect a credit score, in fact they’re stressed about this credit score for months. Stressed to the point that his they feel that stress, feel it in work, in their marriage, their health, their relationships. The kind of stress that keep them up at night. They are terribly worried about his credit score. It has taken over all other concern. CREDIT SCORE!!!!
Is Your Current Credit Score Worth Protecting?
Sitting in my office, one can only imagine what their credit score is right now, with foreclosure looming, credit card companies calling daily, and perhaps the car repossessed. Query: From this point, how long will it be before this person can “re-build” their credit to an acceptable level, often thought of as above 700? The debt will remain, the creditors will continue to call, and the house, well the way things have been going for a while, it’s days are numbered, but perhaps they’ll find a nice apartment that won’t mind this current bleak financial future, all too afraid that seeking help will hurt their falsely perceived beloved credit score.
The Real Question: How Soon can I Have a Good Credit Score?
So what does Bankruptcy do. In the situation above, the credit score is scrapping bottom now, Bankruptcy’s not going to bring it any lower that the current state of “bottom of the barrel”. In fact, Bankruptcy will be the start of the rebuilding process. Of course the Bankruptcy is the atom bomb to a credit score, but again, it needs to start anew, and you’ll want to get started on the re-building process at some point. The options: Start now with the bankruptcy, or start after crawling out of the debt which as we already acknowledged above was not in the foreseeable future, and live with that stress for several more years.
There’s a lot of good information out there on credit scores. One of the best, from what I consider a truly unbiased source is a simple primer found on Wikipedia. Of course, there’s a lot of bad information too. Be informed, read everything you can, and talk to the experts. The bottom line is simple, Don’t file bankruptcy if you don’t have to, file bankruptcy you do. The law was is made available for a reason; protection. Bankruptcy makes people and property productive once again!
O’Fallon, MO 63366