Crushing and uncontrollable debt can make your life truly miserable. Things tend to get worse when you can’t make the best use of proper debt relief solutions. It is then that you decide to file bankruptcy. In bankruptcy, you become part of a proceeding in the federal court. The proceeding leads to the liquidation of your assets and you’re no longer liable to repay your debt. When you file bankruptcy, it becomes part of your credit history. The bankruptcy on your credit report reflects nothing short of complete negativity to the lenders.
Effect of bankruptcy on FICO credit score
The health of your credit is reflected by the FICO credit score. According to the inventors of the credit-scoring model of FICO, the highest value that the score can go up to is 850. The lowest one can earn is 300. Your credit score can get reduced by 365 points once you file bankruptcy. A drop of 365 points in the credit score can prove truly devastating. You can’t afford to keep your credit score like that. That will lay a very negative impact on your finances. It could also become difficult for you to meet your financial goals since your borrowing capability will be significantly reduced. Therefore, it’s very necessary that you do everything to make sure your credit rating is back on track.
There are a few things that you’ll need to do to make sure your credit score regains its original spot. The following steps can help you rebuild your score without trouble:
- Get your credit score – This is the most primary step. Visit www.myfico.com or the major credit bureau websites such that of Experian, Equifax or TransUnion.
- Apply for a credit card – The initial deposit that you make is going to set your line of credit. You won’t be allowed to charge beyond your deposit amount.
- Keep a low balance – It’s important that you don’t charge a very high balance on your credit card. The amount of debt that you carry affects 30% of your credit score. Try not to go past the credit limit or your credit score will be lowered.
- Make timely bill payments – You must be regular with your bill payments as that accounts for 35% of your FICO score. Your score will gradually improve with timely payment of bills. FICO focuses on how well you did things in the recent past and being irregular can easily foil your attempts.
- Get monthly credit reports – Get a free credit report from Equifax, Experian or TransUnion as per the Fair and Accurate Credit Transaction Act (FACTA). Place your order over the phone or through mail at the websites of the credit bureaus.
- Check your new account – It’s important that you visit the ‘Accounts Section’ of your credit report to make sure your new account is reported without errors.
- Look out for inaccuracies – You must be ready to report inaccuracies if there are any to the credit bureaus. This is because errors play a huge role in lowering the credit score. According to the FCRA, you have the right to enter into a dispute and clear erroneous data off your credit report.
- Apply for a second credit card – Once you’re 6 months into using your first credit card, apply for the second one. Your credit score will suffer enhancement by 10%. Make sure you aren’t applying for multiple cards at the same time.
Now that you’ve a couple of credit cards, it’s important that you try to keep the balances low and be regular with your payments. That’s how you can have your credit rebuilt within a few years time.
Author Bio : Dan Marshall is a financial writer and enjoys writing articles on the global financial situation, bankruptcy, making money online, the stock market, debt consolidation, and mortgages along with other finance-related topics. He is
associated with Oak View Law Group.
THANK YOU DAN FOR YOUR GUEST POST!