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A credit score is a summary of your credit history. Combined with the credit report, lenders use this number to decide whether to approve housing loans, auto loans, and other types of loans. Your score can also affect your insurance rates and employment opportunities.
The most common type of credit score is the FICO score, and this ranges from 300 to 850. FICO scores consider factors like:
- Debt to credit ratio
- Debt payment history
- How long you’ve had credit
- New credit
- Types of credit you have
High FICO scores typically mean that one is excellent at managing their finances, while low scores are usually linked to the presence of financial issues.
Bankruptcy and Credit Records
Under current bankruptcy regulations, a Chapter 7 bankruptcy will stay for ten years on your credit report. Chapter 13 can remain on the report for up to 7 years.
How Bankruptcy Can Help Your Credit Score
Contrary to popular belief, filing for bankruptcy may actually help your credit score especially if you already have a low number to begin with. Here are some ways b
- Enhance your debt to credit ratio.
30% of your FICO score is based on the amounts you owe. A crucial factor in this calculation is how much of your available credit you’re using. Debt to credit ration compares your available credit balance to your outstanding debt. The higher your available credit is compared to your debt, the higher your potential credit score.
Accounts with high credit limits are normally frozen or closed once you file for bankruptcy. However, obtaining new credit accounts or affirming debts with good credit limits and low balances after your filing can help your FICO score. This is because you now have minimal or zero outstanding debt, which leads to favorable debt to credit ratio.
Talk to Trusted Bankruptcy Lawyers in Raleigh, NC
Bankruptcy gives a fresh start by removing the burden of your debt. Add the required financial classes for all filers, and you now have the foundations for a healthier financial life. Got more questions about credit scores and other bankruptcy concerns? Call Weik Law Office today at 919-845-7877 for a free consultation, and set up a time to speak with one of our friendly professionals.