The credit score of an individual is a point of concern for them. Many people have tried their level best to improve their credit score but in vain. You will be surprised to find that bankruptcy can be of aid to you in such times. Dallas based bankruptcy law firm Recovery Law Group lawyers enlighten that when you have hit rock bottom in terms of credit score, the only place to go is up. Bankruptcy wipes your slate clean offering you a fresh financial start. However, before deciding to file for bankruptcy, it is important that you are aware of how a credit score is calculated.
Your credit history and other datas are used to generate your credit score. It comprises of both positive and negative credit entries. Late payments on debts lower your credit score while continuing to make the payment has a positive impact on your credit rating. Different credit agencies use diverse methods to calculate your credit score. Generally, five different categories are used to calculate your credit score. These include:
- Amount owed
- Payment history
- Duration of credit
- Types of credit used
- New credit account
Despite only five factors involved, they can have a diverse effect on the credit rating of different people. People with a long credit history might get more weightage on certain points compared to people with relatively smaller credit history. The exact impact of any one factor on your credit history is extremely difficult to calculate.
When people are bogged down with debt, they might find themselves in despair. There are certain steps people can take to keep their credit in line. However, sometimes, negative accounts might not lead to any improvement in the situation. This is because credit reporting agencies use information previously collected with respect to your due balance, any late payment, judgment lawsuit, etc.
When you file for bankruptcy, all debts included are listed as “included in bankruptcy” on your credit report with $0 balance. In case they are not listed so, they appear as active accounts hindering your chances of getting credit. The worst part is that creditors often do not update the information post-bankruptcy discharge. You should ask for a copy of your credit report after a couple of months of getting a bankruptcy discharge. In case you find any discrepancy, you can rectify the mistake by contacting any of the credit reporting agency (Trans Union, Experian, and Equifax).
Building credit after bankruptcy is equally important. Keeping in mind the following methods help immensely:
- Build positive credit. Any bad credit that you had accumulated over the course of time is erased with bankruptcy. However, bankruptcy remains on your credit report for a maximum duration of 10 years which makes it difficult to get credit. You can start building positive credit by opting for a secured credit card or a card with a small credit limit. Using it sparingly and making regular and timely payments can go a long way in building your credit.
- Reading the fine print before accepting credit. Fresh out of bankruptcy, people are inundated with credit offers. However, there is a catch involved with these loan and credit companies. It is important that you carefully understand the terms and conditions of the loan before signing on the dotted line.
- Confirm your bankruptcy discharge. Sometimes, you might find that despite getting your bankruptcy discharge, your creditors are asking you for money. In such situations, you might have to provide them with proof that the debts were indeed discharged in bankruptcy. It is therefore important that you have all your documents in place so that you can provide any creditor claiming ignorance of the discharged debts with proof that you had received a discharge on the debts listed in the bankruptcy.
- Ensure bill payments on time. Making late payments even after bankruptcy discharge is not going to do wonders for your credit report. Just like credit card companies, utility companies too report late payments to credit reporting agencies. Thus, this habit of late payments can end up portraying you as a credit risk. Additionally, paying bills on time can also avoid late payment charges.
These small steps can go a long way in building a healthy credit score which will eventually open the gates for a new credit line. In case you wish to know more about how bankruptcy can play a positive role in your credit history, you can call 888-297-6023 to consult with bankruptcy lawyers Dallas.