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 http://www.myfico.com 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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