A person with a 15-year credit history, low credit card debt, and a current score of 780 will see their credit score fall between 220 and 240 points after filing for bankruptcy.
Regarding credit, it is essential to note that different consumers are affected differently by bankruptcy. Having a long, positive credit history is an enormous advantage for minor issues such as late payments, because a late payment is a tiny, negative drop in a large pool. In contrast, bankruptcy is a significant concern. As previously stated, the consumer with the greatest credit is harmed the most. They have spent a considerable amount of time filling their pool, so they have more to lose when it is depleted.
By law, credit bureaus are permitted to report bankruptcy for ten years; however, they have all consented to report a successfully completed Chapter 13 for only seven years. Obviously, this implies that Chapter 7 has a 10-year impact on credit. 7 or 10 years may seem like a lengthy time, but as time passes, the impact of the bankruptcy diminishes. Within one to two years, the consumer can have respectable credit with appropriate credit management.
The best course of action following bankruptcy is to promptly begin establishing a positive payment history, perhaps with a secured credit card. When someone applies for credit after bankruptcy, the lender evaluates their behavior promptly following the discharge. Everyone knows that good individuals experience bad luck. If so, the consumer has significantly fewer obligations and should resume making payments on time. Likewise, when applying for a mortgage, the lender can consider a hardship story. For instance, """"medical expenditures accumulated, and we filed for bankruptcy. But, we had excellent credit before and after,"""" is a very compelling narrative.
FICO takes, in a manner of speaking, """"bad things occurring to good people"""" into account. In calculating a score, consumers are not compared to the general population, but to individuals in similar circumstances. After a consumer's bankruptcy is finalized, he or she is compared to everyone else who has recently filed for bankruptcy. FICO is attempting to predict how different post-bankruptcy consumers will pay their new expenses. Therefore, if they continue to make payments on time, their credit score will rapidly improve.
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