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Credit Score Impact of Bankruptcy - The Bills.com Blog
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Credit Score Impact of Bankruptcy
Monday, Jun 1, 2009
Question: By how many points does bankruptcy affect your credit?
Answer: Bankruptcy is indeed one of the most damaging things to have on your credit report. The exact drop, however, is impossible to know, since the three main credit bureaus - Equifax, Experian, and TransUnion - do not publicly release the precise formulas they use to calculate credit scores. Furthermore, other variables, such as your pre-bankruptcy score and credit history, will also be factors.Whatever the drop turns out to be, the filing for bankruptcy virtually ensures a very low credit score - at least for the while - and it will be listed on your credit report for 7-10 years.
The good news is that there are alternatives to bankruptcy, and I'll give a brief overview to 3 of the most common ones. Depending on your financial situation and the types of debt that are making you consider filing in the first place, you may find one of these more suitable to your needs and goals.
Debt Consolidation Loans
Probably the common one is debt consolidation loans, wherein consumer takes a single loan, usually secured by his home or other property, to pay off several other creditors. Debt consolidation loans are designed to lower the overall interest rate on debts, and to allow the consumer to make a single monthly payment to one creditor instead of paying multiple creditors. Debt consolidation loans do not generally have a negative impact on consumers' credit scores, as these loans do not increase in the amount of debt; they simply move it from one account to another.
Also, consumers can leave open a few of their older accounts to make sure that they still have plenty of positive payment history appearing on their reports.
It's important to realize that there are dangers to this form of debt consolidation. If you borrow more than you can afford to repay, you could lose whatever property (such as your home) that was used to secure this debt. You also lose the ability to erase the credit card debt in bankruptcy.
Consumer Credit Counseling
Consumer credit counseling companies attempt to negotiate lower interest rates and monthly payments for consumers. If you enrolled in a program, you would pay the credit counseling company a single monthly payment, which would be dispersed to your creditors based on a pre-determined repayment schedule. As long as the program pays your creditors on time each month, and the payment is large enough to cover the minimum payment, then a this kind of program should not hurt your credit score.
Also, very importantly, enrollment in credit counseling is reported to the credit bureaus and some lenders look at credit counseling
It's important to realize that there are dangers to this form of debt consolidation. If you borrow more than you can afford to repay, you could lose whatever property (such as your home) that was used to secure this debt. You also lose the ability to erase the credit card debt in bankruptcy.
Consumer Credit Counseling
Consumer credit counseling companies attempt to negotiate lower interest rates and monthly payments for consumers. If you enrolled in a program, you would pay the credit counseling company a single monthly payment, which would be dispersed to your creditors based on a pre-determined repayment schedule. As long as the program pays your creditors on time each month, and the payment is large enough to cover the minimum payment, then a this kind of program should not hurt your credit score.
Also, very importantly, enrollment in credit counseling is reported to the credit bureaus and some lenders look at credit counseling
as if you had filed for Chapter 13 Bankruptcy. So, while your credit score will not be impacted, your credit profile may be negatively impacted.
Debt Settlement
Debt settlement programs - also know as debt negotiation programs - negatively affect your credit score but often have the benefit of significantly reducing the balance of your debt, sometimes by as much as 40%. Many consumers find this benefit well worth the negative impact on their credit scores that is incurred during the months in which you the company negotiates settlements rather than making monthly payments to your creditors.
When considering your options, be sure to assess them regarding: i) monthly payment, ii) time to debt freedom, iii) total cost, and iv) the credit rating impact of the program. Be sure to evaluate each program, relative to your prioritization of these factors.
Finally, you can apply for a free quote from many of our pre-screen lenders and debt relief program provides at http://www.bills.com.
I with you the best of luck with your financial situation and I have helped you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
Debt Settlement
Debt settlement programs - also know as debt negotiation programs - negatively affect your credit score but often have the benefit of significantly reducing the balance of your debt, sometimes by as much as 40%. Many consumers find this benefit well worth the negative impact on their credit scores that is incurred during the months in which you the company negotiates settlements rather than making monthly payments to your creditors.
When considering your options, be sure to assess them regarding: i) monthly payment, ii) time to debt freedom, iii) total cost, and iv) the credit rating impact of the program. Be sure to evaluate each program, relative to your prioritization of these factors.
Finally, you can apply for a free quote from many of our pre-screen lenders and debt relief program provides at http://www.bills.com.
I with you the best of luck with your financial situation and I have helped you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
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1. Posted by Susie on Tuesday 2nd June 2009 07:06
Debt settlement is not right for everyone, but for an appropriate financial profile, it can be the least expensive and fastest alternative to bankruptcy with the shortest long-term effect on your own credit viability. Look for debt settlement companies that are members of The Association of Settlement Companies (TASC). These companies comply with the highest standards of service and ethics.
2. Posted by Bill on Tuesday 2nd June 2009 07:24
Thank you Susie for your comment. We agree that settlement is the right solution for those seeking to avoid bankruptcy and almost always recommend that a consumer finds an accredited TASC member to help them with their debts. Cheers. Bills.com
3. Posted by Cyber Rainbows on Monday 15th June 2009 19:21
well, we could always inflate our way out of debt. just like the government
4. Posted by Mark on Tuesday 16th June 2009 08:27
That is a good point Cyber, unfortunately we don't each control our own monetary policy, unless you live on your own island with your own Fed!
5. Posted by Brett on Wednesday 4th November 2009 10:01
Regarding Consumer Credit Counseling.... How can it be considered Chapter 13 when you pay the full amount owed with a reduced interest. The program is for revolving credit accounts that are raping you with interest rates that skyrocket with hidden escalation clauses when you are a day late.
6. Posted by Bill on Wednesday 4th November 2009 17:30
Reread what I wrote about CCCS and Chapter 13 in the entire context of that paragraph. Regarding your colorful but inaccurate word choice regarding how banks treat credit card customers, I think we are starting to see consumers become better educated about the total cost of credit card debt. Credit card use is dropping, and if that trend continues we may see banks rethink the labyrinthine rules they created to extract fees from customers.