How Will Bankruptcy Affect My Credit Score?
A common concern for people facing overwhelming debt is the effect that bankruptcy might have on their credit scores. While this concern is valid, the reality is that if you have unmanageable debt — if you are falling behind on payments and are facing foreclosure or car repossession — your credit score will reflect this already. Filing bankruptcy will, in the long run, actually help raise your credit score and offer you a fresh start to reestablish yourself financially. Our Honolulu bankruptcy lawyers can guide you through the best options to improve your credit score over time. Our office is one of the largest filers in the state and offers debt negotiation and tax resolution services outside of bankruptcy. Blake Goodman, PC, Attorney can guide you through the best options to actually improve your credit score over time with our credit score help.
We Can Help You Rebuild Your Credit Score to 720 or Higher in 12 to 24 Months
At this point, you will have already taken the first step, which is to get rid of the old, bad debt. The next step: Replace old debt with new and better information. In “7 Steps to a 720 Credit Score,” you will learn what credit cards to get and how to get an installment that reports to the credit bureaus. Unfortunately, as you will learn in the program, 46% of credit cards will not help your credit score, nor will many installment lines of credit. Applying for the right credit cards and the right installment line is critical, and we can teach you how with our credit score help.
Here are some things to keep in mind:
You need to open 3 credit cards after your bankruptcy is confirmed (Chapter 13) or discharged (Chapter 7), or your debt settlement plan is complete. Credit cards opened before the bankruptcy or debt negotiation plan should not be counted. In “7 Steps to a 720 Credit Score,” you will learn about the best kinds of credit cards for people who have been through a debt relief program and will help you improve your credit score fastest.
To get the best credit score, you need to use your credit cards. Inactive credit cards do not help your credit score because they do not give credit-scoring bureaus any proof that you can manage debt. To keep your credit cards active and keep yourself out of debt, charge one thing on your credit card, and then pay your credit card balance in full.
Common Concerns
While we have addressed the largest concern that many have when it comes to bankruptcy, there are others that have prevented many from pulling the trigger on taking what should really be considered an emergency exit plan.
Bankruptcy is not the life-ruining moment that many believe it to be. When you are burdened by the unbearable weight of debt, you may feel like you have no escape — that there is nothing you can do to fix these issues and you will be in this debt forever.
Not only is none of this true, but it leads to many people that could solve their debt issues through bankruptcy waiting far too long to accept that they need bankruptcy and letting their financial situation decay even further.
Why do they do this? Likely because of issues such as:
Inability to Buy a House
Buying a house is one of the greatest forms of ownership we have. You can design it however you please, paint it whatever color you want, and make it represent who you are as a person. It is also a great investment. When you take a mortgage and buy a house, you are investing in your future, and every payment is going towards the ownership of that house.
Many people who have to accept bankruptcy are concerned that they will never be able to one day purchase a home because no one will be willing to give them the loan necessary to do so — this is not true.
Not only have many of our clients been able to purchase houses and secure loans while still in the process of going through bankruptcy, but they have managed to take those purchases and turn them into good credit.
Good Debt vs. Bad Debt
One of the best ways to raise your credit is through a loan of some kind. For many people, this is dangerous, because as they take on loans through items such as credit cards, mortgages, or car payments, they can go too far and put themselves deep into debt when they can’t afford to make the payments to pay those loans back. However, not all debt is equal. Some can be good, and some can be bad.
When you take on a mortgage or a car loan, the debt you are adding is considered normal. Many people have mortgages or car payments they need to make every month, and as such, simply having these kinds of loans does not harm your credit score. As you pay back these loans, you are also improving and increasing your credit.
Bad debt is the kind of debt that your credit score will consider unnecessary or an example of not being able to make payments on your part. They are things such as missed credit card payments, bank loans that were not paid back in time, or missing car payments.
The best way to prevent taking on bad debt is by budgeting and only using items like credit cards on what you know you can afford. As you build up good debt, pay off that good debt, and avoid bad debt, you will see your credit score rise. This rise in credit may lead to you being able to qualify for lower interest rates, better mortgages, and have an easier time qualifying for large scale purchase loans.