Your credit score is calculated by using five factors: the length of your credit history, the amount of new credit you have, the type of credit you have, your payment history, and the amounts that you owe.   Two of these five factors, your payment history and the amounts you owe, make up the largest part of your credit score; therefore, these factors have the biggest effects on your credit score.  Often times, people are extremely interested in filing for bankruptcy, but are worried that it will have a dramatic negative effect on their credit scores.  They fear that they will be even more financially crippled with a bankruptcy on their credit history.  However, how your credit will be effected by bankruptcy depends on what your credit score is before filing. 

It is true that bankruptcy is visible on your credit report for seven to ten years; however, it is important to note that everything you do is visible on your credit report for up to ten years.  Every time a person misses a payment, or makes a late payment, it appears and effects his or her credit score.  Bankruptcy is a one time hit to a person’s credit score. By making multiple, repeated late or missed payments, you could actually be doing more damage to your credit score than you would be by filing for bankruptcy.  In some cases, individuals have damaged their credit so much that filing for bankruptcy actually improved their credit scores.   As previously stated, the largest factors that effect your credit score are your payment history and the amount you owe.  Both of these factors together account for about 65% of your credit score. Filing for bankruptcy will drastically decrease, if not completely wipe out, the amount that you owe to creditors. As a result, this area of your credit score will actually improve by filing for bankruptcy. 

Despite the many cases that show improved credit scores, it is very possible that filing for bankruptcy can negatively effect your credit score.  This, however, is not a permanent result of filing for bankruptcy; in fact, there are ways to increase your credit score post filing. The best thing someone can do to increase his or her credit score is to make payments on time.  Doing something as simple as obtaining a small credit card that is paid off in full every month can start building your credit again. Additionally, it is important for debtors to note that even though bankruptcy is visible on their credit score for seven to ten years, it will not be calculated in their credit score for that entire period.  In fact, people are generally able to purchase vehicles and even houses after filing for bankruptcy.   

Filing for bankruptcy can give people the fresh start that they are looking for to help them with their financial situation.  While the potential hit to a credit score can be daunting, in the long run, filing for bankruptcy can help improve people’s credit scores. 

For more information about how your credit score can be effected by filing for bankruptcy, contact a St. Louis Bankruptcy attorney today!