Understanding How Bankruptcy Is Going To impact your credit score

If you are struggling financially, bankruptcy can help. Bankruptcy laws came into play to provide debtors with relief from their creditors by giving them a fresh start. This start usually comes with an elevated price, namely, a big hit to your credit.

But Dallas Texas Bankruptcy Attorneys can help your credit in the short and long term. How much it will help or hurt you depends on your financial circumstances, credit scores before you file, and other factors.

How Does Bankruptcy Affect My Credit Score?

There can be a negative impact on your credit scores when you file for bankruptcy. Bankruptcy may have the most destructive effect on your credit scores compared to other debt collection actions.

But actually, no one knows the extent of the damage certain events, like bankruptcy, a short sale, foreclosure, or a deed instead of it will do to your credit. Factors that cause the uncertainty are:

• Credit scoring systems alter over time.
• Credit scoring agencies do not share their formulas publicly,
• Your credit score will change based on your previous and future credit practises
• Creditors use different criteria in assessing consumers for credit, and these also change over time.

Your credit scores will suffer the most if you naturally have good credit scores but file bankruptcy. After you file bankruptcy, the score drop will depend on your pre-bankruptcy scores. Higher the pre-bankruptcy scores, the higher drop you will see after filing bankruptcy.

In contrast, if you are already dealing with low credit scores, bankruptcy will not hurt your scores that poorly.

Role of Filing for Bankruptcy in Your Credit Scores

Your credit scores probably are not as important as the reasons for filing for bankruptcy if you find yourself in a position where you must file bankruptcy.

Obtaining a credit card or new loan is not as insisting as, for example, pending mortgage foreclosure or wage garnishment.

Nevertheless, you might find that bankruptcy could help your credit after you get bankruptcy ease, even though the bankruptcy will stay on your credit report for up to ten years.

Short-Term Positive Effects

You might see instantaneous results on your credit after bankruptcy in some cases.

• Getting rid of delinquent account reports

A bankruptcy discharge would effectively wipe those debts clean if your credit report contained high credit balances and late payments. Discharged debts in bankruptcy must no longer be called "delinquent."

Instead, these debts get reported as "discharged" or "included in your bankruptcy." In some cases, this alteration in how the debts are reported could raise prior low credit scores.

• Improving your debt-to-credit ratio

The amounts you owe on accounts make up 30% of your credit score. An essential factor in this analysis is the percentage of your available credit that you are using. Bankruptcy might help enhance your debt-to-credit ratio.

This ratio is a kind of comparison of your outstanding debt to your available credit balance. The lower your debt, the higher your credit score.

If you possess credit accounts with high credit limits, they will be frozen or closed when you file bankruptcy, and their balances might get discharged.

You can potentially boost your credit score in the following cases:

• debt discharge with a high debt-to-credit ratio,
• obtain new credit accounts after your bankruptcy,
• you reaffirm debts with low balances and high credit limits

The reason behind this is, you will have little to no outstanding debt compared to available credit limits. It results in a favourable debt-to-credit ratio.

Long-Term Positive Effects

Bankruptcy Lawyers Dallas Fort Worth allows you to start over by wiping your debt history clean. You have another opportunity to get your finances straight. You can build the foundation for building a good credit history if you budget accordingly and get disciplined with your money.

It is a good idea to start re-establishing your credit as soon as possible following a bankruptcy. You will not get burdened with the outstanding debt you discharged in bankruptcy. You will have more disposable income to make your new or remaining credit charges on time.

If you establish a good track record of paying your debts on time after bankruptcy, you can increase your credit scores. You might see some progress as early as six months to a year after bankruptcy.

Conclusion

Your credit score is often the essential determinant in whether you receive credit, how much, and at what interest rate. A higher score indicates that you can borrow more at a lower interest rate.

Your credit score drops if you file for bankruptcy. If a lender is willing to accept your credit application despite your low score, it may be on less favourable terms.

You must stay aware and alert about your credit usage to eventually raise your credit score after Chapter 7 or Chapter 13. If you want to know more about how bankruptcy affects your credit score, you can visit Bankruptcy Lawyers Dallas Texas