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How Long Does A Bankruptcy Affect Credit Scores (and Recovery Times)

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Bankruptcy can damage your credit score for as long 7-10 years on average depending on the type and the amount of debts before bankruptcy was filed.

The Damage To Your Credit

Bankruptcy Credit Score Drop

Nobody wants to file bankruptcy due mostly to the fact that it is very detrimental to your credit score.  At filing, the total credit rating of the filer can plunge from between 160 points and 220 points.  In laymen’s terms, that is enough of a drop to take a person’s good score and bring it down to a financially-devastating, bad credit score.

But bankruptcy is often a better option than allowing debts to continue to accumulate, which can do even greater damage to a credit rating. With debts piling up, many in this financial situation find themselves making late payments, becoming delinquent on accounts, opening new lines of credit, etc… This can cause a mudslide of credit ruin. If you’ve found yourself in this predicament then it may be time to file for bankruptcy.

And, while bankruptcy can severely damage your credit score, that doesn’t mean that bankruptcy has to be the end of a good credit rating forever.

How Long Does Bankruptcy Stay On Your Record

There are two types of bankruptcy – Chapter 13 bankruptcy and Chapter 7 Bankruptcy:

•    Chapter 7 Bankruptcy – Also known as a liquidation bankruptcy, a Chapter 7 bankruptcy will discharge most debts in a few months after filing, but the record of the bankruptcy itself usually remains active on a credit report for 10 years.

•    Chapter 13 Bankruptcy – During a chapter 13 bankruptcy many (and possibly all) debts will remain active while a 3-5 year payment plan is worked out with the collectors.  Some debts may be discharged depending on the filing individual’s income.  While a Chapter 13 usually comes off a credit report after 7 years some of these debts may remain active for longer.

Bankruptcies tend to vary greatly between individuals and situations, and while the above lengths of time that a bankruptcy remains active on a credit report are considered the general rule, there are many cases of the bankruptcy record dropping off much sooner, sometimes within only 2-3 years.

Rebuilding Your Credit

It’s never too early to start rebuilding your credit after filing for a bankruptcy.  While it is true that your credit score will most likely take a significant blow from filing for a Chapter 13 or Chapter 7, it may still be possible for you to acquire a secured credit card, auto loan, or rent-to-own loan.  This is important, because without a new line of credit you may find yourself without any credit history once the bankruptcy and debts drop off after 7-10 years.

It’s also important to make sure that all of the discharged debts have stopped reporting to the major credit bureaus after the bankruptcy so that they aren’t bringing your credit score down unnecessarily.

Credit Absolute can help.  By researching and challenging unfair items on your credit report, Credit Absolute can help to eliminate the erroneous charges that may be continuing to damage your credit after a bankruptcy.  Contact us today.

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Coming Back from Terrible Credit (Where to Start)

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Coming back from bad credit can be difficult because people don’t always know where to start. Good or excellent credit may be your goal, but to reach that higher score, there are certain steps you have to take.

If you want to see positive changes in your credit score, there are a number of things that you can do to start on your path to better credit.

Recovering from bad credit

Review your credit report

Consumers shouldn’t assume that the information reflected on their credit report is accurate and up-to-date. Reviewing your credit report will allow you to catch mistakes such as the balance on your credit card or the date your last payment was made on your personal loan account.

If you have questions or doubts about the information on your credit report, you can submit a dispute and have an investigation completed to confirm the information. If any information is inaccurate, it could be corrected or removed, and potentially increase your score.

Watch credit utilization

Your credit score is calculated using a variety of information about your finances and your money management skills. Credit utilization accounts for a certain percentage of your credit score and depending on your credit utilization, your score can increase or decrease.

It is recommended that all consumers keep their credit utilization at 30% or less. This means that if your available credit totals $1000, you don’t want to use more than $300 of that available credit. If you go over this percentage, you will likely see a drop in score, and the only way to change that would be to decrease your credit utilization.

Make on-time payments

Everyone has monthly bills that they are responsible for paying. Whether a payment is on time, missed or late, creditors can report this activity to the credit bureaus, which in turn will affect your credit score.

Avoid applying for new credit

Applying for a new credit account will result in a hard inquiry on your credit report. Each hard inquiry can take points off your score whether you are approved or denied, so you will see a significant drop if you continue to apply for credit. Before applying for a credit card, personal loan, or another type of credit account, consider your odds of approval and if applying is worth losing the points.

Pay down debt

The amount of money you owe is another piece of information that is used to calculate your credit score. Paying down your debt can be beneficial to you because you will owe your creditors less money, but you will also increase your score. Basically, the more you owe, the lower your score will likely be. But if you work on reducing your debt, you can easily see a bump in your score.

Unfortunately, it doesn’t take much to ruin your credit. And once it is ruined, improving your score can take some time. Making better choices about your finances is key, so as long as you actively work to improve your score and avoid making mistakes such as defaulting on student loans, filing for bankruptcy, or even making a late payment on your auto loan, you can see a positive change in your score.

Need help recovering from poor credit? Contact Credit Absolute today for a free consultation. 

 

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Why is it Important to Monitor Your Credit? (Top Reasons to Monitor)

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Increasing Your Credit ScoreA person’s credit scores greatly influence their ability to secure a home loan, rent an apartment, or open a credit card account. Yet, many consumers still fail to keep a watchful eye on their credit report.

Checking up on their credit report may not be a priority, but considering the effect that credit has on a person’s life, consumers have more than one good reason to monitor their credit.

Correct inaccurate information

It is common for people to have inaccurate information reflected on their credit report. Creditors can see a lot of information when they check a person’s credit, from the spelling of their last name to the current balance on a credit card account and the last time the bill was paid. However, if this information is inaccurate, the consumer will have to be the one to get it corrected to ensure the creditor will be able to make an informed decision.

One thing consumers can do is file a dispute. In doing so, the consumer is requesting that the credit bureau investigate the information that has been reported. Typically, within 30 days, the credit bureau can inform the consumer of the results of this investigation and whether the information is valid or needs to be updated.

Protect yourself against fraudulent activity

The number of identity theft victims within the US totaled 14.4 million in 2018, according to Javelin Strategy and Research’s 2019 Identity Fraud Study.  If an account is fraudulently opened in someone’s name, this account will appear on that person’s credit report. Unbeknownst to the consumer, there is someone out their charging thousands of dollars to a credit card with no intention of paying the bill.

Depending on when a person views their credit report, they will be able to see that there is an open account that they didn’t actually open and take action. Alerting credit bureaus of this activity can get the information removed from the credit report, but people should also report this to the FTC and contact the police, as identity theft is a crime.

Avoid unnecessary hard inquiries

Applying for credit will result in a hard inquiry. One or two hard inquiries on a credit report may not impact a person’s score by a lot, but as the number of hard inquiries increases, a person’s score decreases.  Luckily, someone who knows their credit score knows their odds of approval when applying for a personal loan, credit card or another type of credit account.

For example, if a lender requires a borrower to have a score of 650, and an applicant has a score of 600, the chances of denial are high. Should that applicant know beforehand that they do not meet the lender’s minimum credit score requirement, they would be able to find a more suitable option for their credit profile and avoid unnecessary hard inquiries.

Improve/rebuild your credit

Credit reports contain a lot of information about an individual’s finances and credit health. The information that is reported to the credit bureaus is what is used to calculate credit scores, and certain information can cause a person’s score to drop significantly.

When someone monitors their credit, this gives them the opportunity to improve it because they can see what activity is negatively impacting their score. Someone with high credit utilization will be able to determine that using their credit cards less will increase their score. Or that if they avoid applying for credit too often, no new hard inquiries will be listed and decrease their score.

Being in the know is important when it comes to a person’s credit score. Even if they don’t want to monitor their credit on a daily, weekly or monthly basis, obtaining a free credit report every year would still allow them to keep an eye on things and do what is necessary to maintain a healthy credit score.

 

 

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Do IRS Installment Agreements Affect Your Credit Score? Find Out Here

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IRS Installment & Credit ScoresPaying your federal taxes when they become due isn’t always an option. When you have other debts to worry about and money is tight, you have to consider all of your options. An IRS installment agreement is a solution to this problem, but some people may be hesitant because they aren’t exactly sure how it works and how it can affect their credit score.

If you can’t pay your taxes and are considering alternatives, here’s what you need to know about IRS installment agreements and how your credit score can be affected.

What is an IRS Installment Agreement?

When the tax due date rolls around, taxpayers are expected to have already paid their taxes or to make a payment that day. It is like any other bill that you have to pay, but making one lump sum payment is not ideal for those who simply don’t have the money. Paying the total amount due may not be possible that day, and avoiding this debt is out of the question, so an installment agreement is an affordable alternative that will allow taxpayers to take care of this debt.

An installment agreement is one option for those who need a bit of time to pay their tax debt. An installment agreement is an agreement between the IRS and taxpayers. This agreement gives taxpayers the chance to take care of their tax debt over an extended period of time and ensures the IRS receives the money that is owed.

The IRS will then automatically withdraw payments on the due date every month, or you will make manual payments on or by the due date every month.

Do IRS Installment Agreements Affect Your Credit Score?

Credit scores are calculated using information about your payment history, debt, credit history length, new credit, and types of credit accounts you own. Each of these categories counts for a percentage of the credit score, and depending on a certain activity, people may see a negative or positive score change.

For example, a missed or late payment on your student loan, a new credit card account, and even a denied personal loan application can negatively affect your credit score. An on-time payment or not applying for new credit will have a positive effect on your credit score. That being the case, it is important to avoid certain activities if you don’t want to see a drop in score.

As mentioned above, your credit report will list the debts you owe; however; not all debts will be included in your report. The information listed on a person’s credit report is submitted or reported by creditors, and the IRS does not report federal tax debt to the credit bureaus. This means that an IRS installment agreement does not directly affect your credit score.

Should You Apply for an IRS Installment Agreement?

There are disadvantages to an installment agreement, but the one advantage that makes this option so appealing to taxpayers is that they can pay off their debt over time with no effect on your credit score. If you cannot pay your federal taxes by the due date, then an installment agreement may be the best option you have that will ensure you get this debt paid off and avoid further penalties.

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