Who Would You Rather Lend Money To?
The reality is that most people who need to file bankruptcy already have bad credit. If every other option has been considered, then bankruptcy may be the best course of action towards the goal of improving credit scores. This is because bankruptcy allows for the successful discharge of debts that you were unable to repay. Initially, filing bankruptcy may have a negative impact on your credit score. (It is true that bankruptcy will stay on your credit report for up to ten years.) Keep in mind that this is a “short-term” impact. Read more about Life After Bankruptcy.
After your bankruptcy is discharged, your credit report will be updated to show “included in bankruptcy.” However, the accounts will not be deleted from your credit report. Your credit history remains, but now reflect a zero balance on any debts that were discharged in your bankruptcy. Assuming you have income, you should be more creditworthy after a bankruptcy than you were before since your debt-to-income ratio will be significantly improved. It is the duty of the creditors included in your bankruptcy to accurately report that the debt was discharged in the bankruptcy, but unfortunately it is rare for all the creditors to do this, and debts that were discharged in your bankruptcy often do not show as discharged and zero balance.
Who Would You Rather Lend Money To?
Ask yourself if you would rather lend money to somebody who is debt free, but had to file bankruptcy or somebody who has thousands of dollars of outstanding debt they are unable to repay. The person with a lot of outstanding debt presents a much higher risk to file bankruptcy in the future and not be able to repay you. The person who has filed bankruptcy and eliminated a lot of their outstanding debts will now be in a much better situation to repay loaned money. Creditors are aware of this. People are often surprised to receive many offers for new credit specifically targeted to people who have recently filed bankruptcy.
A credit report is a history of money you have borrowed and your repayment history. The three major credit bureaus are Equifax, Experian and TransUnion and the dispute can be made online. What is on your credit report is very important. In fact, you can potentially be paying 30% more in interest rates per month if you have a bad credit score. The good news is that you can avoid being negatively affected by fixing errors that appear on your credit report. Various federal credit laws, (specifically the Fair Credit Reporting Act), entitle you to an accurate credit report. If the reporting agency can’t verify the accuracy of the information, they must remove it. Learn more about other “after bankruptcy” credit repair questions below:
The first step to correcting errors is to review your credit report for inaccuracies. To order a copy of your credit report, visit annualcreditreport.com. Once you have identified any inaccuracies, the next step is to file a request for investigation with each credit reporting agency. Once the credit reporting agencies have received your dispute, items may be removed from your credit report. If successful, this process can take several months to complete.
At any point, it is advisable to create and maintain a reasonable household budget. Get your family involved and start making changes today. Gather more information about how credit ratings work, and how to improve yours.
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