Does Bankruptcy Ruin My Credit?
One of the most common issues, holding people back from filing Bankruptcy, is the misconception that Bankruptcy ruins your credit forever. Nothing could be further from the truth. In fact, for most people with high amounts of debt and derogatory marks on their Credit Report, Bankruptcy will actually help their Credit.
A person's Credit Score is only one factor in determining whether a lender approves a loan application. The most important factor, in determining whether a loan application will be approved, is your Debt-To-Income Ratio. Even if you have a Credit Score over 700, if your Debt-To-Income Ratio is high, not many lenders will want to loan you more money except High Risk Lenders who charge exorbitant interest rates and usually want some form of collateral to secure the loan.
Filing Bankruptcy eliminates debt and improves your Debts-To-Income Ratio. An improved Debt-To-Income Ratio improves the way lenders at the risk you will default on any credit they extend to you. The reason for this is very simple, less debt compared to the same income means you have more money to repay a new loan. For example, all other things being equal, the risk of default on a new loan by someone making $50,000.00 a year who has $100,000.00 in debt is far greater than the risk of default on a new loan by someone making the same $50,000.00 a year who just filed Bankruptcy but has no debt. Moreover, lenders know that a person can only receive a Chapter 7 Bankruptcy Discharge every 8 years and this provides protections to the lender that don't exist in someone with high debt who hasn't sought Bankruptcy Protection.
In addition, the adverse affect of Bankruptcy on one's Credit Score diminishes over time. A Chapter 13 Bankruptcy stays on a person's Credit Report for 7 years and a Chapter 7 Bankruptcy stays on a person's Credit Report for 10 years. Moreover, as time passes, the importance of the Bankruptcy in computing your Credit Score diminishes as well.
Furthermore, as long as you meet other general requirements, many government agencies approve mortgages to purchase a new home in as little as 24 months after your Bankruptcy. Unless you clean up your Credit Report through some other means, like inheriting enough money to pay off your debts, that same mortgage won't be available in 24 months unless you file Bankruptcy.
Finally, you can always take steps to rebuild your Credit Score. These are some simple ways to do that:
- After your Bankruptcy is Discharged, obtain a copy of your Credit Report to ensure that all of your old accounts show that they have been discharged. If some accounts still appear on the Credit Report as open accounts, dispute the matter and send the Credit Bureau a copy of your Bankruptcy Discharge with the dispute.
- Immediately after your Bankruptcy, obtain a Credit Card with a small limit and use the card regularly but pay it off in full every month. Also make certain the Credit Card Company is one that reports to the Credit Bureaus. Some don't report your credit activity and this will do nothing to improve your Credit Score. You can find a list of Credit Card Issues that report to the Credit Bureaus on CreditKarma.com.
- Don't open more than two credit cards and never run balances. The interest rates on these Credit Cards are high and you will end up overextending yourself again. You simply want to open these Credit Card accounts for purposes of rebuilding your Credit Report and Credit Score, not as a means of paying you daily expenses.
- If you must buy a car, save money for a large down payment and finance a small portion of the Car Loan even if it is at a high interest rate just so it appears on your Credit Report. It is simply a small cost of rebuilding your Credit.
- PAY YOUR BILLS ON TIME, EVERY TIME!!!!! Nothing is more important to rebuilding your Credit than paying you bills on time. If you go delinquent on new Credit Cards or have Medical Bills that turn into Collection Accounts, your Credit will be doomed.
Don't let the fear of ruining your credit prevent you from making a Fresh Start with you financial affairs. Put the Past where it should be: In the Past! Tomorrow is a new day and Bankruptcy can give you a new lease on Life.
If you are suffering with financial problems, please call (513) 528-0200 or send an email to Info@CincinnatiBankruptcy.com. You can also contact us with through our website by clicking here.
I look forward to helping you,