Tag: credit score

A Myth: 5 Big Lies About your Score

in Bankruptcy, Credit and Credit Cards

myth

We’ve talked a lot about credit scores and we’ve tried to debunk a myth or two about them.  Credit Scores are the topic of almost every conversation we have in our office with clients.  They’re always concerned about how a bankruptcy will affect their credit score going forward.  While we can tell you that bankruptcy will change your credit score, we can also tell you that your credit score will improve dramatically in the weeks and months following your bankruptcy.  Don’t believe me? Just as the Consumer Financial Protection Bureau. 

That said, there are a number of myths about credit scores and how they change and how that change impacts you.  

Myth #1: The higher the income, the higher the score

Your income and your credit score are almost entirely unrelated.  Obviously, the better your debt to income ratio is, the more likely you are to get credit. However, the bulk of your credit score is made up of three things: Payment history, how long a line of credit has existed and credit utilization. 

We’ve had clients making minimum wage who have excellent credit and clients making 6 figures with credit scores in the 500s.  Your income is not indicative of your credit score.  

#2: Carrying a balance increases your score

Apparently, more than 3/5 of consumers believe this.  It is also a total lie.  In fact, credit card utilization (i.e. how much you owe) is one of the biggest factors in determining your credit score. 

You should always shoot for having a utilization rate under 30%.  That is considered healthy by pretty much every major credit reporting agency.  Carrying a balance is eating up your credit utilization and also likely costing you substantially in interest.  

#3: Closing an old card will increase your score.

Nope. One of the major factors in determining your credit score is the longevity of your credit history.  The older the account the more it helps your cause.  In fact, you should do everything you possibly can to keep a card active, even if you don’t use it. 

Take it out from time to time, but at least once a year, and use it for a small purchase.  Pay it off on or before the due date to keep the card active.  The longer you have that account open, the positively it will reflect on your credit score. 

#4: There’s only one credit score

This is a major myth.  While the FICO score is the most commonly used score, there are a number of other companies that utilize and create credit scoring models.  

There are many credit scoring agencies out there and they all do things slightly different.  In fact, the score you just saw on whatever app you’re using may not be the same one that lenders view.  However, there is one universal truth.  If you have “Good” credit with one, you should be in the same ballpark on all the other ones as well.  

#5: Co-signing a loan won’t affect your credit

This is perhaps, the most dangerous myth about credit scores.   Co-signing is ALWAYS a bad idea.  We’ve discussed it before.  Co-signing increases your credit utilization just as if you charged up a significant balance.  Credit agencies consider co-signing the exact same thing as you taking out a loan on your own.

If the person you co-signed with misses a payment or, god forbid, defaults, you’re on the hook for that loan.  Those missed payments and the eventual default will lead to extremely negative consequences for your credit score and could potentially lead to lawsuits and other collection efforts.

Don’t let lies, misinformation and myths get in the way of making good choices when it comes to credit.  If you have questions about your credit, financial information or bankruptcy, call us.  Our firm has been helping people get out of debt for almost 40 years. 

Credit will Heal

in Bankruptcy

heal

I try really hard to give good news on this blog.  Bankruptcy isn’t nearly as scary as people make it out to be.  Unfortunately, everything can’t be rainbows and unicorns.

Bankruptcy will most likely hurt your credit. It’s a fact.  In the days immediately following your bankruptcy, your credit score will take a hit. 

So…knowing that, does that mean I shouldn’t file bankruptcy?

ABSOLUTELY NOT

I frequently meet with clients who are literally drowning in debt but are worried about their credit report.  They put a miserable little report ahead of their own financial and likely personal health. 

They have a misguided belief that once they have damaged their credit, it will never heal or be the same again.  

That’s simply not true. 

A credit report is a snapshot of a period in time.  

It WILL recover, probably quickly. 

A credit hit is like a scratch, it will heal

No matter your choice, whether it be debt settlement, debt management or bankruptcy, your credit report will get dinged in the short term. 

Instead of worrying that it will be a death knell, think of it more as a scratch. 

It bleeds, you clean it and bandage it (think of bankruptcy as this part), it scabs over and eventually heals . 

Once it heals, there may be a scar…but that fades over time, just like the damage to your credit report.  

Debt is like a disease

When you can’t actually pay your debts off, it’s like a chronic disease.  

There are symptoms that just don’t go away, sometimes getting worse and worse. 

Debt causes stress, which causes a whole array of problems that the medical community still doesn’t quite fully understand.  

But know this, debt will drain your energy, consume your thoughts, limit your opportunities and make you mentally unhealthy. 

Additionally, if you’re already in this much debt, chances are, your credit report already tells a much different story than you like to think. 

In fact, it may not be doing you any good at all. 

The balance sheet matters most

Like I said before, your credit report is a snapshot of a period in your life.  It is, by its very nature, limited. 

As time goes by, things fall off, never to be heard from again. 

If you use the bankruptcy code, you will change the balance in your favor. The balance sheet that is. 

Bankruptcy has the ability to wipe out your debts, on the spot. 

It stops collections, eliminates unsecured debts and clears your balance sheet in one fell swoop. Immediately.

Yes, the bankruptcy filing will show on your credit report, but the further down the road you get, the less it matters to lenders. Also, with your old debts gone for good, you’ll look like a much more creditworthy individual. 

When you take the steps to get financially, emotionally and physically healthy, the credit health will come and your credit report will heal.  

When you’re ready to take that step, call me.

Ruining your FICO score

in Bankruptcy

fico

We’ve covered credit (FICO) scores in depth.  It’s one of the most talked about things in bankruptcy and on my blog.  

People worry about their FICO score and almost every person I meet with believes that bankruptcy will ruin their FICO score.  

They think that once they file bankruptcy they’ll have a scarlet “B” tattooed on their forehead for all time, like they’re some kind of criminal…or worse.  

“I’ll never be able to function again” is a line I often hear.  

Because of this fear, people stagger on, scratching and clawing, burdened with debt and the fear of getting out of it. 

Many people who actually take the time to get to know debtors and what actually drives their financial situation often come to the realization that they aren’t a bunch of deadbeats who are trying to game the system.

They’re normal people who struggle and endure trying times and difficult financial situations.  

That said, I want to shout this from the rooftop:

RUIN YOUR FICO SCORE, DON’T RUIN YOUR LIFE

The financial talking heads constantly beat the drum that your life and your self worth are wrapped up in a miserable little score, which is very odd considering that we don’t even understand what that score really is. 

That score is something that even I as a bankruptcy lawyer of more than a decade don’t even quite understand. I’ve written about it and I have a good grasp on what it does but there are nuances of the scoring system that even I don’t know. 

All the while, we are told life will end, the world will stop rotating, the sky will fall if our credit score (which is derived from notoriously inaccurate information) declines.  

That’s horse squeeze. 

It’s that fear that keeps consumers in America struggling to get out of debt.  They keep trying to repay debts that they’d never get paid off in this life or the next, just to preserve a “score” that ultimately doesn’t mean much. 

Credit scores are dynamic.  In fact, the CFPB states that your credit score starts increasing the day you file bankruptcy. 

The biggest thing you can do is focus on your overall financial heath. You do this through getting rid of dischargeable debts, saving for retirement, living beneath your means and having an emergency fund. 

That fear keeps American consumers struggling to pay debt that they can never repay, in this life or the next.  In order  to preserve their credit score, they appear resigned to a lifetime of minimum payments rather than a fresh start in bankruptcy

Don’t spend your life just struggling to stay afloat. 

When you’re ready to take a step in the right direction, call me.

Credit score increases rapidly after bankruptcy, says by the CFPB.

in Bankruptcy, Credit and Credit Cards

Our clients are often so very concerned about their credit score.  That’s natural, and frankly, we are too.  I check my credit score at least once every two weeks.  It’s a point of pride for many people.  For others however, it can be the difference in being able to get ahead in life or not being able to afford those things we need. 

We have some very good news to report for people who are worried about the impact that bankruptcy will have on their credit score. The good news is, and I say it boldly;

AFTER BANKRUPTCY, CREDIT SCORES GO STEADILY UP

That’s right.  All these years you’ve been lied to by people who have no idea what they’re talking about.  Telling you that if you file bankruptcy your finances are toast and you’re dead in the water. You’ll never get another loan again.  We’ve all heard it and it’s usually coming from the slime ball that charged you 97% interest on a $2,500 car loan.

We didn’t just make this up either, although we already knew this to be true, this is a report from the Consumer Financial Protection Bureau.  The study, which you can read here is completely legitimate and has been researched over the last 17 years. Another finding from the study is 

A PERSON’S CREDIT SCORES START IMPROVING THE SAME YEAR AS YOUR BANKRUPTCY FILING

Take a minute and absorb that.

How Creditors Use Fear

Creditors and all their hack buddies scream from the rooftops about bankruptcy trashing your credit score.  The data shows just the opposite.  In fact, there’s usually no dip in your score after filing.  The overwhelming amount of people who file bankruptcy see an IMMEDIATE increase in their score. Don’t believe us, just read what the CFPB says: 

Median credit scores increase steadily from year-to-year after consumers file a bankruptcy petition.

Median scores for Chapter 7 filers recover more quickly than those for Chapter 13 filers possibly due to the much quicker and more likely discharge of Chapter 7 filings.  

Bankruptcy improves your Financial Health

When it comes to your financial health, let’s get one thing straight. Your credit score is a vastly inadequate indicator of your financial health.  What really matters is your balance sheet.

A credit score is a distraction

In the grand scheme of loans and credit, lenders look at your balance sheet as much or more than your credit score.  In essence, they look at your net worth which is comprised of assets minus liabilities.  If you eliminate the liabilities you have via bankruptcy, your net worth looks even better. 

A credit score is just a number, most banks prefer a measure called the Debt to Income ratio or DTI.  If you wipe out unsecured debts, your DTI goes down as well, improving your likelihood of getting approved for a loan.  

Boost your credit score

You can take actions that can boost your score.  One of the best ways to do that is to check your credit report.  Not just your score, but what’s listed on your report.  When you look into credit reports, you’ll find that credit reports are notoriously inaccurate. Nearly 1 in 4 credit reports had factual inaccuracies that could negatively impact your credit score. That’s why its very important to check your credit report often, even more so than your score itself.  

Is bankruptcy right for me?

Just because you can file bankruptcy, doesn’t mean you should. It’s just one of the things you should consider if you find yourself needing to file.  Lots of different factors influence whether you should file bankruptcy.  We discuss those factors in one of our recent blog posts

If you’re ready to discuss filing bankruptcy with an experienced bankruptcy attorney, contact our office today for a free, no obligation consultation.  

What is a Bankruptcy Risk Score?

in Bankruptcy

There is a little known piece of information out there floating around in the world of credit data that most people have never heard of.  In fact, I didn’t even know it existed until I became a bankruptcy attorney. Most everyone has heard of a credit score and I get tons of questions about what the credit score is, how its used and how you can improve it.  In fact, the discussion about credit scores is part of nearly every consultation we do at Harmon and Gorove. The piece of information that isn’t often discussed is a person’s bankruptcy risk score. A bankruptcy risk score is a number that indicates the likelihood of an individual filing for bankruptcy.  

According to bankrate.com, “According to financial experts, this score is used secondarily to the credit score when financial institutions scrutinize a consumer’s credit history. Kept tucked away from consumers for nearly 20 years, this number differs from the credit risk score, because it’s a little more specific. It measures how likely a person is to file for bankruptcy.”  The banking industry uses the number for a myriad of reasons including lending decisions and compliance. In other words, if your bankruptcy score is too high, they likely won’t lend to you and additionally, if banks know that they have a number of loans on the books that have a high risk of filing bankruptcy, they will know how much they need to keep in reserve to cover these potentially bad loans.  

Consumers also get a raw deal when it comes to figuring out what these scores actually mean.  Each bureau has their own ratings score. Whereas the credit bureaus generally use a scale from 300 to 850 with 850 being the highest, the bankruptcy risk score doesn’t have a standard index of measurement like credit scores. This means consumers are only able to get general information about their bankruptcy risk. This means that unlike credit scores, there’s no surefire way to know if your score is high or low compared to other numbers. 

The absolute last thing any creditor wants is for you to seek bankruptcy protection, particularly Chapter 7. Once that case is filed, they have to quit calling and leave you alone.  What that means for them is that they will get no money out of you, ever. The only debts that generally aren’t wiped out in bankruptcy are student loans and income taxes (and even those can be reduced or eliminated depending on your circumstances). If your bankruptcy risk score rises, even as you are in the worst financial shape you’ve ever been in and have the least ability to pay, collection efforts may grow extremely aggressive as creditors and their slimy collection agents often view this as their last chance to get anything from you before you are protected by the law. 

If you find yourself struggling financially and you’re tired of trying to keep your head above water, give the attorneys at Harmon and Gorove a call to see how we can help you get out of debt for good.  Our attorneys have over 30 years of experience helping good people out of tough situations.  Our attorneys work every day to help people just like you, get out of debt and get a fresh start on life.  Let us put our experience to work for you.

Tackling Credit Card Debt

in Credit and Credit Cards

With credit card debt in the United States nearing 1 TRILLION dollars, it’s easy to say that a great deal of people are feeling overwhelmed by the debts carried on their revolving accounts. Many people who carry balances on their credit cards pay just the monthly minimums and ignore the problem.  This is NOT a good plan. Pretending your debts don’t exist just makes the problem that much worse. This strategy will backfire on you every time in the long run. It will make you miserable, it will cause you to be unable to save for the future and it could eventually drive you into bankruptcy.

If you are interested in trying to get started on paying down your long term credit card debts we have some advice for you.  The best strategy starts with the first step and that step is often to modify your spending habits by creating a budget and sticking to it. Just small modifications to your daily routine can mean big savings that you can then start using to pay down your balances one at a time, always starting with the payment with the highest interest rates.  

Step one is to decide on a repayment strategy.  Don’t allow yourself to continue to drown under the weight of multiple credit card payments each month.  If you start working your way down from the top (meaning you pay off your biggest balance or highest interest rate) you can begin to reduce your debts quickly, freeing up more and more disposable income that you can then use to continue to pay off other debts.

Another step you can take is to communicate with the people you owe money to. If you’re struggling with the exorbitantly high interest rates that are routinely charged by credit card companies, sometimes just giving them a call and asking for an interest rate reduction will allow you to free up more money to pay down the principal on the card each month.  Sometimes credit card companies will work with you on rates if you’ll commit to repaying the debt at that lower interest rate.

There are lots of options available to you if you feel like your drowning in credit card debt.  The attorneys at Harmon and Gorove can help you find a way out of debt for good. Contact us for a free, no obligation consultation to find out how we can get you started down a path to financial freedom.