You can still reestablish your credit score after going bankrupt. Just ensure you don't incur any unnecessary expenditures that would damage your rating further.
Filing for bankruptcy certainly damages your credit score. Expect a huge drop in your rating if you had an excellent rating. Negative marks impact negatively on your credit score, and bankruptcy is no exception. However, the number of points you lose depends on how high your credit score was.
Period bankruptcy damages your credit
There are two types of bankruptcy you can file for. Liquidation bankruptcy (Chapter 7) enables you to get rid of unlimited amounts of unsecured debt while you surrender your assets. This process is relatively shorter and usually takes between 3 and 6 months. Chapter 13 bankruptcy allows you to repay debts that you include when filing for 3 to 5 years. The debt you can include has no limit, and you don't have to surrender your assets.
Perception by creditors
Both bankruptcies affect your rating similarly. There is a potential that creditors will favor one type over the other when assessing you for eligibility. A lender may give you credit in the Chapter 13 scenario provided you prove you are making timely payments. The impact of Chapter 13 bankruptcy lasts for 7 years while Chapter 7 sticks for about 10 years. The adverse effect on the credit score persists during the bankruptcy period, but reduces over time.
Raising your score after bankruptcy
Filing for bankruptcy doesn't imply that you are doomed for good financially. There are measures you can take to ensure you repair the damage on the credit score. Ensure you check your credit report carefully and ensure it has no errors; dispute the errors with the credit bureau if the bankruptcy is not recorded correctly. Improve your financial management to ensure you don't spend more than what you earn; you can set reminders for any payments you are making. You have to be responsible for meeting your financial obligations since the payment history accounts for 35% of your credit score
What is a credit score
A credit score is needed for you to be able to get a loan or credit. The reason behind this is because it will help financial institutions to determine your creditworthiness. They will also see every loan that you made and the payment history that you have. Find out more about it by reading the information below.
Credit scores are calculated based on the proprietary algorithm. This will include the person's outstanding debts, payment history, and the length of the individual's credit history.
Credit scores can range from 300 to 850. The higher the individual's score, the lower the risk. People who have lower credit scores are considered high risk, which will make lending companies ask for more requirements.
About Fico scores
Fair Isaac Corporation is the one who established FICO, and it is one of the most commonly used credit scoring systems today.
According to FICO, 90% of the most reputable and respected lenders today are making decisions according to this kind of credit scoring system. Get to know more about Fico scores by reading the information below.
How are credit scores calculated?
The weight of each of the five categories are; 30% of amount owned, 10% is for the new credit, 15% accounts for the length of credit history, 10% is the credit mix and the last 35% accounts for the person's payment history.
The FICO score takes into consideration positive as well as negative aspects of the credit report. The percentage or the weight of any of the categories mentioned above may differ from a person to another depending upon the information available in the credit report.
The FICO score takes all of the information from your credit report. However, the banks or any other lending institution might look at your income, type of credit and employment history when you apply for a loan or mortgage.
Once a certain lender asks for a client's credit report, they can also ask for the Fico score. Other sources say that your Fico score will include 35% of your payment history, 30% of your credit utilization, and 15% as to how long have you been borrowing.
Explanation of credit score ranges
It is important to know the category that you fall into when it comes to credit score for you to be aware. The range of a credit score can go from 300 to 850. Always remember that the higher your score, the higher the chances of you to qualify for a loan. There will also be instances where a financing company is okay with 650 scores, while the other is fine with a 750 score. It will all depend on the lender itself.
A lender or a bank will check your credit score if you qualify for the application that you are requesting. Here are some of the credit score ranges that you should know.
Bad credit score
People with a credit score below 579 is known as high risks. Foreclosures, poor payment history, and bankruptcies are the reasons why people fall into this category.
Good credit score
A good credit score ranges from 680 to 719. People with this credit score can expect approvals and interest rates that are better.
Very Good
A very good credit score ranges from 720 to 799. People with this credit score is known to be small risks, and they often get loan amounts that are higher than usual.
Excellent
An excellent score ranges from 800 and above. Financial freedom is expected to people with this score.
Other things you can do to improve your credit score
The credit score ranges from 300 (the lowest credit score possible) to as high as 850 (the highest credit score possible). Higher you credit score, greater are your chances of getting your loan or credit request accepted quickly.
However, if you are facing issues with your low credit score, following are some of the tips or techniques that you can use to improve your credit score:
You should start by minimizing your total debt. The increase in your total debt value is going to affect your credit score negatively.
You should also be very careful with your bills and other credit payments. If you pay them on time, this will gradually improve your credit score.
Have a closer look at your credit balances. You do not want to cross the credit limits because they deteriorate your credit score.