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Does Bankruptcy Ruin my Credit?

Without a doubt, few people avoid a reduction to their credit scores when filing bankruptcy, which remains on your records for a defined period after your bankruptcy discharge. However, bankruptcy does not actually ruin your Fair Isaac Company (FICO) score. By understanding the basis for your FICO score, you can work to increase your score after bankruptcy, perhaps to a lever higher than ever before.

Keep in mind that your ability to obtain credit depends largely on your FICO score. According to their consumer website, MyFICO.com, Fair Isaac Company bases the score solely on the following five factors:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit opened over a short time period (10%)
  • The mix of credit types in use (10%)

After your bankruptcy discharge, you actually have more control than you realize over these factors. In other words, while bankruptcy takes a toll on your credit rating over a defined period, you have the capacity to re-build your FICO score by responsibly handling your money in the future. Common bankruptcy myths may state that other factors out of your direct control — such as salary and employment history or obtaining the credit counseling required to file bankruptcy — play into your ability to obtain credit. However, in truth, a person who earns $20,000 a year can conceivably have a higher credit score than a person earning $2,000,000 annually. It all depends on what you do with the funds you earn.

The services provided by the Mark E. Cohen, Esq. in Queens do not end at the moment of your bankruptcy discharge. We can offer suggestions on the best ways to improve your credit score so you can responsibly obtain the credit you need to buy a car or a home in the future.

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