08 Jul Filing For Bankruptcy Can Help My Credit Score?
In the Smart Money article, the author, Aleksandra Todorova points out that your credit score can improve after filing for bankruptcy. The main reason why your score can improve is that most people struggling with debt already have problems with their credit score such as late payments and high balances which drive your credit score downward.
So how does filing a bankruptcy improve your credit score?
The answer is that if your bankruptcy is correctly reported, your credit report is wiped clean.
By saying that your credit report is wiped clean I mean that, if reported correctly, your high balances are removed as are any late payments or records of unpaid debts. Instead, the accounts included in the bankruptcy should be marked as “Included in Chapter 7 Bankruptcy” or “Included in Chapter 13 Wage Earner Plan,” depending on the type of bankruptcy you have filed.
In the long run a bankruptcy can help your credit score.
When calculating scores, the formulas developed by the Fair Isaac Company (your FICO score) are set up to grade someone’s credit standing as compared with that of
consumers in a similar financial position. In other words, you credit worthiness is compared to others who have filed for bankruptcy, not against someone with excellent credit.
Finally, you probably noticed that though out this article I state what “should happen” if “you credit report is correct”.
A common problem in the credit reporting industry is the mis-reporting of debt after bankruptcy.
To read more about the subject of mis-reporting, consider the following articles by other BLN contributors: “Your Credit Report After Bankruptcy” by BLN member Jay Fleischman, “Disputing Credit Reports” by BLN member Nicholas Ortiz and “Can I Legally Clear Bad Debts From My Credit Report?” by Brett Weiss.
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