One of the concerns we often hear during our free consultations at Bond and Botes is how a bankruptcy will affect an individual’s credit score. Typically, when someone mentions their credit score, they are referring to the FICO score, which gathers credit information and calculates a score that is intended to help lenders predict whether an individual will be able to repay their debt, among other things.
While bankruptcy will certainly have an effect on your credit score, it is difficult to predict exactly how your score will be affected since the method of calculation used by FICO is a trade secret. Generally, though, a bankruptcy will have a larger in impact on a higher score than a lower score.
Should I Worry About My Credit Score?
While a credit score can certainly help navigate the necessary financial obligations that arise throughout one’s lifetime, does there ever come a time when you no longer need to worry about your credit score?
Once you have financed your home, paid off your car, and saved up for an emergency fund, is there any real need for a good credit score? This is a complicated question.
One’s credit score may not have a large effect on someone once they have taken care of the major financial tasks that are typically helped by a higher credit score, however, there is no guarantee that you will not one day have to rely on your score again. Unforeseen events happen, and you could be required to move and obtain a new mortgage, or you may have to replace a car that breaks down or that is involved in an accident.
Your credit score is also typically reviewed by insurers when setting premiums for auto, homeowner’s and renter’s policies, with a lower score resulting in a higher premium. If these situations arise, a higher credit score can make things a bit easier.
When to Ignore Credit Score Changes
There are certain situations, though, where it may be best to ignore the impact that a specific action may have on your credit score if that action will improve your overall quality of life.
For example, if you are struggling to pay for necessities like groceries, medications, or utilities, then continuing to keep up with credit cards payments just to prevent a drop in your credit score may not be the best option. You may not want to worry about your credit score if bankruptcy is your best option. Even if you can keep up with monthly payments on credit cards, you may be sacrificing your future by continuing to pay on high-interest rates linked to most credit cards.
Contact a Trusted Bankruptcy Attorney for Help
Bankruptcy may be a better option. Although it may lower your credit score initially, it could allow you the financial stability to improve your score in the long run. If you are having concerns about your credit score and how it may be impacting your financial situation, please give one of our Bond & Botes offices a call for a free consultation.