Bankruptcy and Credit Scores

Filing for bankruptcy is always a big decision, with many factors to weigh.  One of those is the effect that a bankruptcy can have on your future credit possibilities. In the short term, bankruptcy will significantly lower your credit score - and this can create extra costs for you when you work to rebuild your credit, or try to purchase a car or a home.  However, if your credit score has already taken a big hit such as a foreclosure filing, the impact of a bankruptcy filing may not be as significant.
Even with this credit impact, bankruptcy may still be the right decision for you. It is possible to rebuild your credit score over time, after bankruptcy. But if you choose to file bankruptcy, you need to consider the short-term credit hit along with all the other factors. Understanding Your Credit Score Credit scores, also called FICO scores, are issued by the three major credit bureaus - TransUnion, Equifax and Experian. These scores - named after the software used to calculate credit information - range from 300 to 8501 points and are used by financial institutions to determine how risky it would be to extend a line of credit to consumers.  According to Equifax, the majority of credit scores fall within the 600s to 700s. FICO scores are used in about 90% of decisions to extend credit. 
In order to calculate this snapshot of your credit history, credit bureaus use six months’ worth of data about your spending habits. The factors that are considered when calculating a credit score include your payment history and whether you have consistently paid your bills on time; your outstanding debt; the percentage of available credit that you have on each of your credit cards; the types of credit that you use; length of credit history, new credit, and whether you are currently employed. The credit bureaus also consider how many inquiries have been made about your credit, which can indicate that you have applied for several lines of credit because you are struggling financially.
Other important factors that can negatively affect your credit score include filing for bankruptcy, home foreclosure and liens issued against you. The Importance of Your Credit Score The higher your credit score is, the more confident that lenders will be that you can pay back a loan or other lines of credit. Typically, lenders look favorably upon consumers that have a credit score that is 700 or higher.
If your credit score is 600, or lower, however, lenders will be more cautious about extending credit to you. And even if your bad credit score does not preclude you from
1 According to Experian.com
receiving credit, you can expect to pay higher interest rates on your credit cards or larger down payments when you purchase a home or car. A low credit score can also affect other areas of your life that may surprise you. For example, in some cases employers look at the credit history of job candidates during their hiring processes, particularly for jobs that involved handling money. Conclusion There are also ways to improve your credit score.  Talk with an attorney at our firm to discuss your options. We can answer any questions you may have about the impact of bankruptcy on credit score.