Monday, February 18, 2013

Will Bankruptcy Ruin My Credit Score?

Will Bankruptcy Ruin My Credit Score?
King & King Bankruptcy Attorneys, February 18, 2013

One of the questions we often hear from our Georgia bankruptcy clients is “will my credit score be completely ruined by bankruptcy?”  The first step in answering this question is understanding how credit scores work.

A credit score is derived from information provided by the three major credit-reporting agencies.  The credit score uses complex analyses from this information to provide a score ranging from 300 – 850.  A high credit score reflects a low credit risk individual.

According to the following categories make up a credit score (ranked in order of importance):

Payment History (35%): delinquencies, past dues, bankruptcies, etc.

Amounts Owed (30%): How much debt you carry, number of accounts with balances, proportion of credit lines and installment loans.

Length of Credit History (15%): When accounts were opened.

New Credit (10%): Numbers of recently opened accounts and credit inquiries.

Types of Credit Used (10%): Number of various types of accounts (credit cards, retail accounts, installment loans, mortgage, etc.)

If you’re like most people filing for Chapter 7 or Chapter 13 bankruptcy, much of the negative impact on your credit score has already occurred due to late payments, delinquent accounts, etc.   Consequently, a bankruptcy filing may have only a limited impact on the existing score. Further, as can be seen in the above-formula, after obtaining a discharge in a bankruptcy the credit score will quickly start to improve because you have eliminated all or most of your debt.  

Bankruptcy will give you a much-needed fresh start. With re-establishing your credit and monitoring your finances, your score could be back in the 700s within two or three years. Many of King & King’s clients have seen results like this with proper post-discharge management of your finances.

If you have questions about filing for bankruptcy, call King and King today for a free consultation 404-524-6400. 

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