How Bankruptcy Affects Your Credit Rating

Almost everything a person does affects their credit rating in one way or the other. One thing that can deliver a devastating blow to your credit score is the act of filing bankruptcy. This one act alone can have a detrimentally negative effect on your credit score for as long as a decade.

Bankruptcy is a way of wiping the financial slate clean so to speak, however not all debts can be cleared in this way. Before filing bankruptcy you should know exactly which types of obligations will not be included in this action. These obligations generally include such things as student loans and child support payments.

For some people debt has become so overwhelming that bankruptcy may seem like the only way out from this crushing mountain. Unfortunately this does not necessarily mean that this is the best course of action. Before the decision is made to file bankruptcy a person should be sure that they have exhausted all other possible options. Because bankruptcy has such a negative impact it should be used as a last resort.

One reason that filing bankruptcy has such a negative effect on a person’s credit rating is because many potential creditors view this action in a very negative light. Many creditors consider filing bankruptcy to be worse than delinquent payments or a poor payment history. In addition to this filing bankruptcy can lower your credit score by as much as a hundred points and remains on your record for as long as ten years.

Before making the decision to file for bankruptcy a person should carefully explore all options that are available to them. In many cases it is possible to find an alternate solution and avoid filing bankruptcy at all. One common alternative to bankruptcy is that of debt consolidation.
Debt consolidation is when a person takes out a loan to pay off all of their individual creditors and then combine them into one monthly payment.

This often makes a person’s monthly payments much lower than paying individual debts and allows a person the opportunity to relieve some of the burden of debt much faster. This is an option that is becoming increasingly more popular among individuals who have become burdened by debt and begin considering the option of bankruptcy. For many of these people however debt consolidation is much more beneficial in the long run than if they had filed bankruptcy.