How Bankruptcy Affects Your Credit Rating

The extent with which your credit score is affected by depends on which chapter bankruptcy you file: Chapter 7 or Chapter 13. Chapter 7 Bankruptcy will be reported on your credit for as much as 10 years, and Chapter 13 Bankruptcy is allowed to be reported for seven years. On personal financial statements, job applications, and anything else that can potentially ask the question, “Have you ever filed bankruptcy”, you would be obligated to answer “yes”, however. This does not necessarily mean that your credit will be permanently damaged, but answering otherwise could actually be considered fraud in some cases (a mortgage application at least).
The interesting thing about filing bankruptcy is even though a Chapter 7 tends to do more harm to the creditors involved (oftentimes the debt is wiped completely out), chances are you will be more likely to be extended credit three years after a Chapter 7 than a Chapter 13. The reason is simple: your credit history is only one part of your credit score, and having disposable income and no debt is far more important to your creditworthiness than the marginal credit history benefits of a Chapter 13.

Debt Consolidation & Your Credit Report

There are many different types of debt consolidation, and each one has a different credit effectthan the others. First, there is debt counseling. This involves a reorganization of your debt and working out payment arrangements with your unsecured creditors, normally credit card companies. A second type of debt consolidation is debt settlement, also known as debt negotiation. This involves negotiating with creditors to accept a lump sum settlement (sometimes as little as 40-60% of the balance) in full satisfaction of what is actually owed. The third sort of credit & debt consolidation is balance transfers, which typically involves opening up a credit card account with a low promotional interest rate. The final way one can consolidate debt is through either a consolidation loan, which can be taken out as a simple unsecured loan or by borrowing against the equity (ownership) one has in a piece of property (secured). As one would expect, the effects on your credit profile of each form of debt consolidation varies dramatically.

Consumer Credit Counseling Services

The manner in which consumer credit counseling services affects your credit is a complicated issue. For one it varies depending on the credit card companies are being included in the debt management plan. Secondly, it depends on whether you are referring to your credit score or your credit report, and lastly it depends on the lender you are working with.

Debt Settlement Programs

In most cases, debt settlement or negotiation will have an adverse effect on both your credit score and your credit report. Depending on your circumstances and commitment to rebuilding your credit, recovery is not only possible but it can be faster than one would expect. Much like the credit effects Chapter 7 Bankruptcy, debt settlement helps the amounts owed portion of your credit score.

Credit Card Balance Transfers

When discussing the potential credit consequences of credit card balance transfers one must first understand the credit impact of credit card debt and what makes up your credit score. Allow us to briefly go through what your credit score is comprised of: a. your payment history (35%), b. the amount you (30%), c. the length of your credit history (15%), d. new credit (10%), and e. types of credit used (10%). Of the following components of your credit rating, a credit card balance transfer could potentially affect both your new credit and length of credit history negatively.
The “new credit” component can be affected negatively because presumably the promotional interest rate is from a new account. Opening up a new credit card account is typically not viewed favorably, particularly if you have opened up several other credit lines recently. The “length of credit history” can be potentially affected negatively if you close the credit card account from which you are transferring balances, especially if the account is one of your older ones. For more information about topics related to this, visit MyFico.Com

Debt Consolidation Loans

There are two types of debt consolidation loans: secured and unsecured. The disadvantages and advantages of debt consolidation loans from a credit standpoint vary between the two.