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How Bankruptcy Affects Your Credit

Factors contributing to someone's credit score...

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If you have trouble paying your bills and you don’t see any end in sight, you may have to file for bankruptcy. That can wipe away your debt in many cases, but it will also affect your credit. Before you make a decision on whether you should file for bankruptcy, you should be clear on what will happen to your credit when your bankruptcy is discharged. If your bankruptcy lawyer hasn’t explained that to you, be sure to ask questions and get the answers that you’re seeking. It’s up to you to be able to make an informed decision, since it’s your credit.

Generally, people who file for bankruptcy have struggled with their debt for a while. They likely already have credit problems. Filing for bankruptcy, though, could still cause their FICO credit score to drop significantly. To get information about credit and help with bankruptcy issues, visit www.ClearBankruptcy.com. There’s no way to go through bankruptcy without hurting your credit score, but you’ll want to minimize the damage as much as possible.

Once your bankruptcy has been discharged, you can focus on how to rebuild the credit you had before things started going wrong. The bankruptcy will stay on your credit record for 10 years in most cases, but that doesn’t mean you won’t be able to have a decent credit score for that length of time. If you’re careful after your bankruptcy, you can generally rebuild your credit to an acceptable level in around three years. That will allow you to purchase a home or a car, or get an unsecured credit card. Either of those options will further strengthen your credit.

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Forms of Credit and How they Work

There is practically nobody who goes through life without ever needing a loan. You are going to have to get a loan for something or another. This is why it is important to understand all the different types of modern loans and what they are used for.

  1. Mortgage Loans: This is the type of loan you need to buy a home. There are 15 year, 30 year, balloon, variable rate, and a variety of other options.
  2. Car Loans: Most car loans are for five or six years and can be gotten through a bank. The amount of money you qualify for is dependent upon your income and credit score.
  3. Credit Cards: This is the most widely used type of loan. Credit cards enable you to purchase whatever you want at the store and not have to pay it back until the bill comes.
  4. Payday Loans: In order to get a payday loan, you have to prove how much income you make. It is a great way to get cash fast, though, but it has to be repaid at the time of your paycheck coming in.
  5. Short-Term Loans: This type of loan is usually reserved for emergency situations, like when an unexpected bill comes up and you don’t have enough money to cover the costs. GreatPlainsLending is an example.
  6. Loans from Family: Getting a loan from a family member is usually the best option because they often have little to no interest. Some people prefer to go with other lenders, however, because it can be awkward to be in debt to those you know.
  7. Student Loans: A student loan often has a low interest rate and does not have to be paid back until schooling has been completed. It is one of the only ways many people can afford to go to school.
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A Method to Rebuild Your Credit Score

When you make a decision that it is time to get out of debt, taking advantage of a prepaid card is one way to improve your situation, as well as raise your credit score. A prepaid credit card provides a beneficial way to secure your money, because you can only spend as much as you put into the card. Tracking spending becomes much easier. You also don’t have to carry so much cash around, which is a security risk. Therefore, the credit card companies view the use of a prepaid card as a positive factor when calculating your credit score.

Lenders use your credit score as a way to predict how likely it is you will repay loans and credit card debt and whether you’ll do so on time. When you use a card that is prepaid, this shows the credit card companies that you are being responsible by finding a way to securely manage your cash. The more you use the prepaid card, and feed more cash into it, the more it looks like you are gaining a hold on responsibility. This leads to credit score companies raising your score.

Having a higher credit score has many benefits. This means you’ll have lower interest rates on loans for things like a car or a home, so you end up saving money in the long run. The score also has an influence on the quality of credit cards you can get and allows for higher spending limits once the lender feels secure enough to add their own funds to the card. If you want to, you can add extra money to the card. This is called refunding. A unique benefit to a prepaid card is that if you are having difficulty in getting credit, being responsible with a prepaid card will help you eventually get a regular credit card.

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