If you’ve always been curious, how bankruptcy can impact your credit, then this information can help you answer that question. Hopefully you will then be a few steps ahead in your knowledge of bankruptcy and how it can affect you. This informative article will answer that nagging question: How does bankruptcy affect my FICO score?
A bankruptcy will affect your FICO score negatively because bankruptcy is a proclamation to the world that you are not able to pay your bills. The acronym FICO stands for; “Fair, Isaac and Company”. This is the company that developed the software system (or formula) that puts a credit score on your credit record. It is one of the most popular, if not the most popular way lending institutions make their decisions on who to lend their money to. Literally billions of credit decisions are based on the FICO score. Since this score is so widely used it is plain to see that the question; ” How does bankruptcy affect my FICO score ?” would be an easy one to answer.
Bankruptcy is such a negative downturn on a person’s finances that it will no doubt also be a downturn on your FICO score. Those with bankruptcies are put into the ” problem files ” category. Those with foreclosures and experience with collection agencies can answer the question; ” How does bankruptcy affect my FICO score ?” with a loud; ” For the worse!”. The FICO score does not reflect your income or ability to pay. Instead it reflects your propensity to pay. You may make plenty of money and be able to easily afford a certain car or home, but your FICO score will not be showing such an ability.
As you may have figured out, one of the top reasons for getting a lower FICO score would be bankruptcy since bankruptcy shows your complete delinquency to pay back what you owe. Now that you know the answer to the question, how does bankruptcy affect my FICO score?, it is a wise thing to do all you can to avoid entering bankruptcy protection if you want a higher FICO score.