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Bankruptcy and How to Improve Your Credit Score in The New Year

Many of our Massachusetts bankruptcy clients ask how much will a chapter 7 bankruptcy harm their credit score.  Will it really stay on my credit report for ten years?  Will I be unable to get credit during that time?

While the fact that you filed for personal bankruptcy may stay on your credit report for a decade, it should matter less and less to your score as time goes on.  This is because your credit score is a function of your recent credit history, not your ancient credit history.

How Is My Credit “Scored”?

Credit scores from the major credit reporting agencies use the Fair Isaac (FICO) weightings.  The formula is:

35% from payment history, which includes your bankruptcy and other adverse information such as lawsuits, wage garnishments.  As time goes on, those negative attributes to your score matter less and less.

30% the total amount owed; the ratio of available credit to you to amount you owe;
15% the duration of credit history; the history of each credit line opened and the activity on that credit line;

10% new credit; this is the recent applications for credit or credit reports lifted by landlords or employers;

10% type of credit used; this is the ratio of credit cards to car loans to mortgages.

How Can I Improve My Credit Score?

Get a credit card. Use it.  Make the monthly payments on time.  It’s a simple as that.

If you cant get a card with someone who has good credit, try a secured credit card.  Secured credit cards are secured by monies in an account that you have already deposited.  It’s an excellent way to carefully relearn how to use a credit card.  Be sure that the secured credit card is from a bank or credit union that reports credit activity to the credit bureaus.

Using a joint credit card will also work.  However, if you have had trouble with using too much credit in the past, be sure that you know the ramifications for spending on your joint credit card; and that your co-owner of the card understands too.  Again, be sure that the issuer of the credit card is reporting your name and credit activity to the credit bureaus.

Make payments on time.  Make payments on time.  This is critical!

Don’t use all of the available credit.  Credit reporting bureaus look at the percentage of available credit you are using.  If you max out credit accounts, it is a signal that you may be in trouble, sooner or later.  Don’t try to trick the reporting bureau by thinking that paying off the balance will resolve this issue.  They look at balances at different times of the month.

Make it a point to check your credit reports regularly for mistakes.  If you find a mistake, document it and send it to the credit agency to prove you are correct.

Hire An Experienced Bankruptcy Attorney

Thus, don’t let filing for a chapter 7 bankruptcy be deterred by your notion of a poor credit score.  If you need debt relief, retain the experiences of an experienced Massachusetts bankruptcy attorney, get a fresh start, and then work on improving your credit score.

Call now.  Start your new year off right. Call 617-227-7423 for a free initial consultation.

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