The concept of credit scores started in 1989, and since then has evolved into today’s most popular scoring model, the FICO Score from Fair, Isaac, and Company. The law regulating credit scoring models, Fair Credit Reporting Act regulates the information contained within your credit report. Back in the 1800’s, most credit was conducted by businesses, not consumers.
Being credit worthy is all about risk. Are you a good risk or bad risk?
Drive up your credit score by not using more than 30% of the total available credit. That means, if you have a $1,000.00 line of credit, you never charge more than $300.00 per month to that credit line and pay off that balance in full each month. That is how to build credit, by not using it. Another way is to not have more than four trade lines open at any given time. So, if you have a car loan and a mortgage, you never need more than two credit card accounts. If your own credit portfolio differs from what was just described, then you have cleaning up to do. Keep this in mind, all your credit score tells anyone is how well you manage debt. Are you still attached to your credit score? Would you be surprised to find out how your credit score is racist? Check this out: The dark side of credit scoring
So, how did a perfect credit score ever become a bragging point? Capitalism on steroids and the great income inequality exposes the polarity between the haves and the have nots. Usually those with perfect credit scores do not need credit. The fact that you say you need a credit card for emergencies, says more about your financial habits than your credit score.
We have all been brainwashed to believe that getting credit is good, that’s why the marketing material is sent to you in very expensive, shiny envelopes that make you feel worthy. Don’t you ask yourself, “What’s in your wallet,” every time you hear that commercial for a credit card? The idea behind the marketing works to make you feel loyal to the credit card company that gave you your first taste of credit. Later, they make you feel loyal when they increase your credit line and suggest all the things you could do with that “money.” Unfortunately, it’s not money given, but money lent to you at a very high interest rate. What is not being sold to you is the truth. The truth that the average interest rate for credit cards is 18%. What would you buy with an 18% interest rate? Certainly not big ticket items, I hope.
So, how does filing for bankruptcy protection improve your credit?
- Stops the negative credit reporting of late/missed payments, which drives your score down.
- Debt-to-credit line ratio accounts for about 30% of your credit score, so what happens when bankruptcy wipes your debt away? Improved credit of course.
- If you think debt settlement is better than bankruptcy, then just wait for that IRS bill called a 1099-c for that cancelled debt. The fact that there is no tax consequence for any debt discharged in bankruptcy might be enough for some to consider it. Owing taxes can have a negative effect on credit.
- Filing bankruptcy helps significantly with law suits and judgment debts by wiping them out too. Filing for bankruptcy protection comes with a powerful tool called the Automatic Stay, which is automatic from the moment your case is filed. This means that creditors must stop collecting from you and cannot continue a legal proceeding against you in another court to try to collect from you during bankruptcy.
- Are you a victim of identity theft? Do you need to clean up your credit and clear the errors? Bankruptcy will stop those thieves because of its shotgun approach. All of your debt is included and wiped out instantly and the credit lines are closed, which makes them run on to the next victim. After bankruptcy, you can get to clearing the errors, which will improve your credit.
I am informed by my bankers that you will be back on a normal standard credit rating within 5 years after bankruptcy. I can confirm this is true based upon my own bankruptcy experience. I’ve walked the path eliminating my debt quickly, which allowed me to save for a down payment on a new home within a year after my bankruptcy discharge. Don’t take my word for it, get a second opinion here.
