Perhaps the biggest reason why debtors are afraid of filing bankruptcy is because of its impact on their credit score. “Bankruptcy destroys credit score” – This is what most people believe by heart. But how much truth is in this quote? Is bankruptcy really the biggest enemy of your credit score? Get your facts correct. Right now and right here.
Bankruptcy – A good friend or an enemy of your credit score?
For those who are swimming in a deep sea of debt, a good credit score becomes a dream for them. It is their most cherished possession. While they’re busy in managing bills, minimum payments, creditors; in the back of their mind lurks only one line,
“What if my credit score gets a more powerful blow? Will I be able to get more credit cards?”
Honestly speaking, credit score shouldn’t be your concern when you’re drowned in a deep sea of debt. Your financial situation is really very bad. In fact, it is so bad that you’re contemplating filing bankruptcy. And people think about heading to bankruptcy courts when all the other options are closed. You’re at a dead end. So stop thinking about your credit rating for the time being at least.
Is bankruptcy good or bad for your credit score?
For some people, bankruptcy can be good for their credit score. Don’t believe it? Just have a look below:
- Your credit-utilization ratio drops: The more you owe on your credit card, the higher is your credit utilization ratio and it hurts your credit score badly. Once you pay off debts through bankruptcy, your credit utilization ratio dips. And this helps to boost your credit score.
- Helps to improve payment history: Bankruptcy dumps your debts. This means you don’t have to make payments on your old debts anymore. You can finally focus on your bills and other financial obligations. Once you start maintaining finances properly, your credit score starts rising. The pre-bankruptcy credit counseling and finance management course can help you strike a balance between your income and expenses. You can finally start dreaming about a good financial house.
- Releases the pressure on credit cards: It is really unhealthy for your finances to be too much dependent on your credit cards. You can apply for as many credit cards as you want. But remember, you’re only the delaying the inevitable. You can pay off a few bills with your fifth or sixth credit card. But you need to pay off these credit cards as well. Your debts are only increasing. Nothing else. This is just a temporary solution.
- Replaces bad debts with good debts: Payday loans and credit card debts are costly debts. Most importantly, these are bad debts which don’t help you in any way. Besides, these expensive debts will drop your credit score faster than anything else. Bankruptcy helps you eliminate these high interest debts fast. It gives you a chance to rebuild credit and change the direction of your financial life.
Bankruptcy can help to reduce and eliminate your debts. You can manage your budget and live a fruitful life.
Bankruptcy has pros and cons like anything else. But it would be utterly wrong to say that bankruptcy is a devil since it gives you a fresh financial start. Yes, it does affect your credit score. Now you have to decide if you want to file bankruptcy and get rid of debts or stay away from bankruptcy to live with debts and poor credit score.
So, this was my take on bankruptcy and credit score. What do you guys feel? Do you still feel bankruptcy is really bad for your credit score? Leave your comments here.