Credit scores are important not only to help lenders assess the risk of borrowers, but it is just as important for borrowers too. Credit scores are referred to when you are seeking a job, trying to obtain a property on rent or even in determining insurance rates. The way the society looks upon you can thus be linked to credit scores in some ways. However, living with debts has become a way of life today. Intense consumerism has led people to the point where they have started living beyond their means. Having multiple debts is quite common as it is also common to see more and more people filing for bankruptcy.
Bankruptcy damages credit score
Too many debts are always difficult to handle and keep under control. Since there are some ways to seek debt relief, you might even take more risks in borrowing money with the hope that you might be bailed out in crisis. Debt consolidation is one of the most accepted ways of converting multiple debts into a single one and even at lower interest. This is often more preferred than exercising the option of seeking relief by filing for bankruptcy out of the fear that credit scores can be irreversibly damaged.
Is it really too damaging?
When you are sunk in debts and desperately seek relief, your credit score has already taken a hit. Therefore, it is prudent not to panic but weigh the losses to determine how advantageous it would be to file for bankruptcy. Missing payment dates repeatedly and paying less than full payment for two or more successive months can cause much more damage to the credit score. The score does not improve even if subsequent payments are made on time. On the other hand, the damage to credit score when filing for bankruptcy is a temporary affair that gives an opportunity to reset it.
Rebuilding credit score is possible
When you consult any firm offering law services to help you in filing for bankruptcy, they will tell you about how much truth is behind the apprehension of irreversible damage. The fact is that your credit score does get disrupted when you decide to file for bankruptcy and it is also true that for a period up to 10 years, the incident of bankruptcy can appear on your credit report. However, the damage that is done is far from irreversible. The credit score can be reconstructed once again only a year after you have filed for bankruptcy. The score will surely be much better after a year than what it was at the time of filing for bankruptcy. You would be on the path to recovery.
Filing for bankruptcy gives you the chance to recover and rebuild your finances. It wipes out all loan balances that you were carrying and provides permanent relief from debt. In addition, it creates a situation when your credit score is once again set to improve as a result of lowering of debt to income ratio.
About the author – Stewart Fitzpatrick is a consultant for personal finances. A lawyer by profession, he has worked for several law services and has guided people to lead a worry free life through better financial management. Lending more clarity about debt management is what motivates him to write on the subject. Using his blogging skills he stays in touch with people.