One of the most common concerns people have about bankruptcy is how it will affect their credit. Often assumed that it will significantly damage a credit score, people may hesitate from seeking the relief a bankruptcy can bring. The reality is that bankruptcy doesn’t damage your credit, and it can actually be the thing that improves it. Let me show you why:
Fact : Your credit is likely already damaged before you even consider bankruptcy . High debt balances, missed payments, negative marks from creditors, and debt collection actions are what actually damages your credit and causes your score to drop.
So you see your score is likely poor the day you step into a Dayton Ohio bankruptcy lawyer office.
How Credit Scores are Calculated After Bankruptcy
Your credit score is calculated by several aspects, but there are two main components that influence your score the most.
First, is payment history. After a bankruptcy you will have a chance to start over and make a positive trend in your new payment history. While bankruptcy won’t erase your old missed payments, it will provide a clean slate for you to obtain some small, manageable debts and make payments on time to improve your overall payment history. After a few short months of timely payments, you will see your score begin to improve.
Second, is the debt-to-limit ratio. After a bankruptcy your debt-to-limit will be eliminated. Since you will no longer carry a debt balance your ratio is 0% of the credit limit. Credit score thrive with percentages 30% or less. So eliminating these balances in bankruptcy is a quick way to a better score.