If you are considering bankruptcy, you are probably wondering how does filling bankruptcy affect your credit score. It is true that filing for bankruptcy in California may impact your credit score, however, surprisingly enough, filing bankruptcy may not necessarily have a negative impact to your credit score. If your debt to asset ratio is high, filing for bankruptcy will actually help your credit score in the long run. Read on to learn more about how filing for bankruptcy impacts your credit score.
What is a Credit Score?
When you apply for credit — credit cards, auto loans, mortgage, or a student loan — the lender will first look at your credit history to decide if you are financially stable to pay back the loan. The lender will use a FICO score in making a decision. If your FICO score is in the mid 700s or above (good credit), you should not have a problem securing a loan. If your FICO score is low, the lender may ask for you to make a hefty down payment.
Will Filing for Bankruptcy in California Impact My Credit Score?
Depending on the nature of your outstanding debts, your credit score may or may not be affected by the filing of bankruptcy. For example, if you are delinquent on several accounts, your credit score will likely be low. If you have spotless credit and a high FICO score, it may go down significantly.
How to Repair Your Credit Score After Filing for Bankruptcy
You should obtain a credit report after your bankruptcy petition is granted. This will help you discover if there are any errors on your report. Credit companies consider several factors when computing your credit score:
1. Outstanding debts
2. Payment history of debts
3. Credit history length
4. Existing new credit
You can start repairing your credit score by reducing your debt to income ratio. Filing for bankruptcy will help you reduce and/or eliminate most consumer debts. Keep your debt low and make sure you pay all of your bills on time. Debt payment history makes up 35% of your score. Do not take on more debt than you can handle.
If you get a credit card after filing for bankruptcy, make sure you pay it off every month. Most importantly, do not close any accounts. When you close an account, it reduces the amount of credit you have available. This will lead to a lower credit score. Cut up your credit card if you think you will overspend. Obtain a low-limit secured credit card to rebuild your credit score. Most banks will offer low-limit credit cards or secured credit cards to people who have filed for bankruptcy.
Check Your Credit Report on an Annual Basis
You should continue to check your credit report on an annual basis. Obtain a credit report from all three credit reporting bureaus (Experian, TransUnion, and Equifax). Each bureau will report different information. Review each report to make sure all the information is accurate and the amount of debt owed, if any, is the same for each reporting bureau. If any of the information is inaccurate, you will have to contact the reporting agency to have the report corrected. Make a detailed list of all inaccuracies and attach any supporting documents. Send a detailed letter to the agency requesting for the inaccurate information to be corrected.
We hope you found this article helpful. A People’s Choice provides legal document preparation services to residents of California, however we no longer prepare bankruptcy documentation.