How Does Filing for Bankruptcy Affect your Credit Score?

If you’re considering bankruptcy, you may be asking yourself: how does filing bankruptcy affect #credit score? πŸ€·β€β™‚οΈ

While filing bankruptcy in California will probably impact your credit score, you might be surprised to learn that it may not necessarily have a negative impact! 

For anyone filing or considering filing bankruptcy, it’s important to understand how it will affect your credit score and how you can keep it as high as possible.

What is a Credit Score?

When you apply for credit via credit cards, student loans, or a mortgage 🏠, the lender will look at your credit history to decide if you are financially stable. 

Most likely, the lender will use a FICO score in making their decision. If your FICO score falls in the mid 700s or above, you should not have a problem securing a loan. However, if your FICO score is low, you may have to make a hefty down payment before obtaining the credit.

Your credit score is determined by the following factors:

  1. Payment history of debts

  2. Outstanding debts

  3. Credit history length

  4. Existing new credit

How Will Bankruptcy Affect Credit Score?

If you are delinquent on several accounts, your credit score will likely be low prior to filing bankruptcy and therefore may not be affected. 

On the other hand, if you have spotless credit and a high FICO score, it may decrease significantly upon filing bankruptcy.

How to Repair Your Credit Score

While debt payment history makes up 35% of your score, you can start repairing your credit score by reducing πŸ“‰ your debt-to-income ratio.

Even though filing bankruptcy will reduce and/or eliminate existing consumer debts, you must keep all future debts low and pay your bills on time. Also, do not close any of your old accounts as this lowers your credit score.

Finally, obtain a credit report from every year and review it to ensure accuracy and consistency.