Bankruptcy Affects One’s Credit Score

Credit has pros and cons.  It is a wonderful thing in life until…it is not. When deep in debt, the temptation of declaring bankruptcy is huge.  Chapter 7 or Chapter 13, sometimes we just want to get rid of the debt burden and start over.

But wait! There are drawbacks!  One of the major concerns is how bankruptcy will impact one’s credit score.

The degree how bankruptcy impact one’s credit score depends largely on where one’s credit score stands before filing.

According to FICO, bankruptcy and other credit mistakes affect your credit score. Using a mock scenario with two different credit profiles, FICO showed a bankruptcy could cost up to 240 points for someone with a 780 credit score and 150 points for someone with a 680 credit score. While the person with the higher credit score loses the most points, in both examples the individual credit scores end up around the same place, 540 and 530.

The higher the starting FICO score, the more it may fall. After bankruptcy, the record may impact your credit score for 10 years.

These days, if you want a loan with good interest rate, you need a credit score of above 720. Protecting your reputation actually saves you money.

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