Bankruptcy and Your Credit Score

Posted on May 18, 2011

As a result of current difficult economic times, many people have been forced to consider bankruptcy. While bankruptcy has been a helpful and necessary process for many people, some are hesitant to take that step out of fear or a misunderstanding of how bankruptcy works. One common question for people is: How will bankruptcy affect my credit score?

How Your Credit Score Is Calculated

Scores range from a low of 300 to a high of 850, with the average score being 723 according to 22 pieces of data make up the Credit Score, but only five points make up the majority of the score. Note: Income is NOT a factor used to create your credit score. The five major pieces of information are:

– Payment history (35 percent of the rating): According to a recent CNN report, a mortgage payment that is 30 days past due can drop a score anywhere from 40 to 110 points. Being 90 days late can cause the score to fall 70 to 135 points.

– Length of credit history (15 percent): Creditors like to see consumers with established and lengthy credit histories

– New credit (10 percent)

– Types of credit used (10 percent)

– Debt (30 percent):  scores calculate your score based partly on your available credit to your outstanding balances

Bankruptcy and Foreclosure

–          Foreclosures may cause an 85-160 point drop

–          Bankruptcy may drop a score 130-240 points

–          Bankruptcies may remain on your credit report for 7 years for Chapter 13, and 10 years for Chapter 7, 11 or 12

Ways to Improve Your Score

– Pay bills on time — This is the most weighted factor in FICO scores.

– Keep credit balances low

– Don’t close credit accounts

Work with an Attorney

Bankruptcy is a complex process, but can give people the fresh start they need. If you are considering bankruptcy or concerned about how it will affect your credit and your future, discuss your situation with an experienced bankruptcy attorney.

If you would like to learn more and/or receive assistance with bankruptcy, loan modification or foreclosure, please contact us at (857) 244-1940 or fill out the form on the right.


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