There is no denying that applying for bankruptcy can affect your credit score. But once you have finally written off your debts, don't look at your negative credit score as a drain - think of this as a chance to have a blank slate to build up your credit report again.
So if you have just declared bankruptcy, take a look at the following statements and mark down how many you agree with:
A good credit score is primarily determined by on-time payments.
The less debt you carry, the better your credit score will be.
The more debt you carry, the more likely it is that credit bureaus will consider you to be high risk.
How many statements did you agree with? If you found yourself agreeing with any of the previous three statements, then it is time to reboot your credit rating knowledge. Get ready for a quick yet informative financial lesson that they just don't teach you after declaring bankruptcy.
First, we will deal with the on-time payments. While a responsible payment history certainly won't hurt your credit score (in fact, it's one of the fundamentals of good financial behavior), it's not the primary component of the best score. In fact, it's your credit to debt ratio that plays the biggest part in determining your score.
Never heard of this term before? Not to worry: despite it's importance in configuring a score, many financial experts won't highlight this key formula to their patrons. The concept behind the credit to debt ratio is particularly simple: the lower your amount of credit to debt ratio, the higher your credit score. Theoretically speaking, you could have a credit card maxed out to the limit - but if you have six other cards with an empty balance, then your credit to debt ratio will be particularly low.
After you've filed for bankruptcy and get your debts discharged, be sure not to close out any old credit card accounts beforehand. You might think this will improve your chances of getting a higher credit score faster, but this can actually have an adverse effect, as this can artificially inflate your credit to debt ratio and result in a low score.
Do not wait seven to ten years after bankruptcy for your credit score to return to normal - use the information here to start getting back on a good financial track as soon as possible.
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