Yes, bankruptcy can help your credit score
Image by CafeCredit.com via Flickr
For Wilmington consumers overwhelmed by debt, the future can look dire. When you run late on bills, debt collection activity can get aggressive. When you’re hounded by collectors demanding payment, it can cause problems at work and in your personal relationships. As if that wasn’t enough, your credit score takes a hit month after month, so long as your debt worsens.
Bankruptcy can stop the debt spiral and end your credit score free fall, but prevailing myths stop many consumers from taking advantage of the life-changing opportunities that come with this legal debt relief option. But consider these facts.
Exceeding limits, late payments, and collections wreck your credit score
When you miss one credit card payment, rent or mortgage note, or auto loan installment, your credit score takes a massive hit. You might think missing just one payment is no big deal and it’s only when the late payments pile up that your credit score takes a beating. The opposite is true. The first missed payment hits hardest. Subsequent delinquencies continue the barrage on your score, but it’s the first one that is most impactful and can drop your score by 100 points!
Collection items double the damage
When you’re late on a bill, many creditors report you immediately to the credit bureaus, with the exception of medical providers and some utilities. When the debt lingers unpaid, the creditor will usually hire a debt collector or sell the debt. From there, the debt collector will log a negative item on your credit report. That means your score will take a double hit and you’ll have the original item dragging down your score plus the collections item.
Wilmington bankruptcy stops the free fall
When you file Wilmington bankruptcy, it causes your credit score to drop somewhat. How many points it drops depends on your credit score. The higher your score when you file, the greater the drop. But after that initial hit, your credit score will begin to rebound. Why? Because you won’t have creditors continually reporting missed payments every month chipping away at your score. Once the bankruptcy clears out a lot (or all) your debt, your credit score starts to recover.
Image via Federal Reserve
Bankruptcy filers see faster credit score recovery
The Federal Reserve analyzed data on credit scores after bankruptcy versus those that didn’t file and muddled on with their dire debt situation. See the graph above. The data runs across more than a decade of data and shows clearly that choosing bankruptcy to shed unmanageable debt enables Wilmington consumers to rebuild credit scores more rapidly than trying to deal with a financial crisis without the legal remedy.
Cleaning up your credit score after bankruptcy
While your score rebounds organically after bankruptcy, it’s also to your benefit to take strategic steps including:
- Ensure all accounts in your bankruptcy reflect the filing on your credit report and show a zero balance.
- Within a few months of getting your bankruptcy discharge, start working to reestablish your credit score.
- Get a credit card as soon as you can. Usually, you’ll have to start with a secured card. Use it conservatively, never miss a payment, and build from there.
- Check your progress monthly by signing up for a credit score monitoring program. There are many low-cost options.
Muddling on with unmanageable debt isn’t the best path. Dodging debt collection calls and living paycheck-to-paycheck diminishes your quality of life and negatively impact your relationship and career. Choose Wilmington bankruptcy to get the fresh financial start you need and deserve!
To find out more about how filing bankruptcy can actually improve your credit score, contact the Law Offices of John T. Orcutt. Read client reviews, then call 1-888-234-4181 to schedule a free Wilmington bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.