Declaring bankruptcy has the potential to impact your credit score more significantly than any other single financial event. Negative impacts on your credit often make it more difficult to obtain credit in the future.
Read on to learn how declaring bankruptcy can impact your credit score.
Your FICO Credit Score
Most lenders rely heavily on your FICO credit score in order to determine whether they can trust you to repay your debts. This score determines whether you are safe to lend money to, how much money to lend, as well as at what interest rate.
A higher score allows you to borrow more money at a lower interest rate.
Factors That Determine Your FICO Score
Your payment history accounts for 30% of your total credit score. If your payment history is already inconsistent, then filing bankruptcy may not cause your score to drop significantly. The total amount of debt that you owe accounts for another 30% of your total credit score.
It’s unlikely that your credit score will improve after filing bankruptcy. However, if you don’t file bankruptcy and continue to allow your debts to go to collections, this will also negatively impact your credit score significantly.
How Far Your Score Can Drop
The amount your credit score will drop largely depends on the type of bankruptcy you file. Depending on which bankruptcy you file for, your credit score can drop anywhere from 160 to 220 points.
A drop this significant can take a good score down to a fair or poor one.
Your Credit Report
The amount of time that the bankruptcy remains on your credit report depends on the type of bankruptcy you file.
The following bankruptcies remain on your credit report for ten years after filing:
- Chapter 7
- Chapter 11
However, Chapter 13 bankruptcies stay on your credit report for seven years after the completion of the bankruptcy. Keep in mind that Chapter 13 bankruptcy proceedings can take three to five years to conclude.
If you need help deciding whether bankruptcy is right for you, our attorneys can help. We have helped thousands of other people with their financial problems and we may be able to help you, too. Don’t hesitate to contact our office right away with any questions you may have.