Facts About Your Credit Score After Bankruptcy
"It is said that the world is in a state of bankruptcy, that the world owes the world more than the world can pay."
- Ralph Waldo Emerson (1803-1882), American poet and essayist.
Ralph Waldo Emerson may have uttered these words more than a century ago, but with the current recession forcing many individuals to seek Chapter 7 or Chapter 13 protection, and companies to take recourse in Chapter 11 reorganization, his words seem to have a prophetic ring to it.
There is a lot of speculation out there about the effect bankruptcy has on credit score of an individual and the ability to take further credit. Such speculations range from noticeable increase in credit scores to superior negation of credit in future - both, casually, oversimplification of facts. Here is the legal fact and bankruptcy and your credit.
As you are familiar with, your credit score is the determinant of your capacity to take a loan, and even then, the repayment conditions you are subjected to. Many consider that bankruptcy can so much moderate the credit score that taking out loans thereafter will be unsuitable. However, that is not so. For some, declaring bankruptcy may actually increase credit scores. But any such increase is really little, and only because the scores are really small anyway. Here is how.
If you state bankruptcy, your credit report, which largely determines your credit score, is wiped pure for all functional purposes, with high balances, overdue payments and records of unpaid debts being removed. All your accounts included in the bankruptcy are then designated as "Included in Chapter 7 Bankruptcy" or "Included in Chapter 13 Wage Earner Plan," depending on the bankruptcy classification. With debt removed from your credit report your credit score may register a slight increase.
Since the estimation of your credit score depends on the behavior of your peers in your asset class, and since individuals who have filed for bankruptcy comprise an asset class of their own, you are no longer rated related to people with perfect repayment records. For example, the formulas developed by Fair Isaac (the company that provides the widely-used FICO score) separate consumers into 10 groups, using "score cards." It then ranks the consumers in each group based on the others in the group. One of these score cards is bankruptcy filers.
Consequently, if you maintain a reliable repayment record as compared to other bankrupt individuals, your credit score should notice an increase. you will not be superior to bear your score up to the perfect 850 as long as your bankruptcy stays in your report (a duration of seven to ten years), but with proper credit supervision after filing, a score in the 700s is not impracticable . This would confirm your proficiency to take loans at sufficient rates.
Bankruptcy is an obstruct to initiate life afresh, and you should catch this moment with both hands. One suitable approach to begin rebuilding your credit score is to obtain a secured credit card, create timely payments and then transform it to an unsecured one. Although the bankruptcy will remain on record for long, your credit can be restored long before that is removed.