Credit scores are a very vague concept to most people, yet they can hold so much power over your financial well-being. Almost everybody has a credit score, and like it or not, it can affect everything from being able to open up a new credit card to determining if you will be approved for a mortgage or rental property. If you are considering filing for bankruptcy, chances are your credit score has already taken a hit, and is lower than what is recommended. You are also likely worried that if you go through with a bankruptcy, your credit score will become even lower, to a point that is irreparable. We are very happy to tell you that this is not something you should worry about.
If you are dealing with overwhelming debt, your first priority should be to solve your debt problem, whether it be with a bankruptcy or another form of debt relief. Once you have found a solution to your debt problem, you should then focus on repairing your credit score. In order to start to repair it, you will first need to understand what actually makes up your credit score. The five components that make up your credit score include:
- Types of credit used (10%)
- New credit (10%)
- Length of credit history (15%)
- Credit utilization (30%)
- Payment history (35%)
The five different components of your credit score are affected by bankruptcy in various ways. Below you will find how each is affected when you file a bankruptcy case.
As you can see, there are many components that are POSITIVELY affected by a bankruptcy discharge. Although many positive things happen to your credit score after bankruptcy, it is common to see a dip in your score immediately following your discharge. As long as you manage your finances properly after your bankruptcy discharge, you will only see your score go up from there!