Have You Ever Wondered - What"s the Effect of Bankruptcy on Credit Rating?
Although bankruptcy can be a cost effective and quick way to eliminate debt for many Canadians sinking in a sea of unpaid bills, the effect of bankruptcy on credit rating prevents them from even considering that option.
So just what is the effect of bankruptcy on credit rating? It's best to begin by alleviating the fear some people have - bankruptcy does not prevent you from being able to borrow money in the future.
Contrary to what you may have heard life after bankruptcy discharge does not mean you will need to pay cash for a car, a home, or anything at all you might want to buy for the rest of your life.
There are actually banks in Canada right now that specialize in mortgage loans for people who have been discharged from bankruptcy.
It will cost you more to get credit for quite awhile, but you will be able to get it.
The two most common means of scoring a credit rating are the 9 point scale and the FICO score.
With the 9 point system the highest score you can get is an R1 - Pays within 30 days as agreed while the worst is an R9 - Bad Debt, Placed for Collection.
In effect, an R9 rating reflects the purpose of bankruptcy - a chance at a fresh start.
Your credit file will include a notation with the date of your bankruptcy discharge which will remain there for a minimum of 6 years after your discharge.
Calculating a FICO score is pretty complex but the two most heavily weighted variables are the total amount you owe and your payment history.
A surprising outcome of this method is that bankruptcy filers whose FICO score is extremely low before filing don't drop significantly lower after filing.
If you are already near the bottom, how much lower can you go? The simple fact is that regardless of which scoring system is used to rate your credit, bankruptcy is going to have a negative effect on your ability to get credit in the short term.
You can find credit repair help on the Internet that outlines some little known but helpful techniques like adding your own notations to your file.
If the circumstances that led to your bankruptcy were due to extremely unusual circumstances, a note explaining the situation can be viewed positively by some creditors.
If you are fortunate enough to have friends and family open enough to discuss their financial troubles you may have run across someone recently discharged from bankruptcy with an interesting story to tell.
Believe it or not, shortly after discharge some Canadians begin to get credit offers in the mail! How can that possibly be? If the effect of bankruptcy on credit rating is to destroy it in the near term, what is going on? Creditors are in the business of lending money to make money and when some see a person who is virtually debt free, they can be ready to get you back in the game, albeit at an exorbitant cost.
If you have a verifiable and stable source of income, these people see you as potentially a reasonable risk.
There are specific things you can do - such as opening a secured credit card account - shortly after discharge that will allow you to demonstrate your ability to make timely payments and thus prove yourself to be a decent credit risk.
For anyone willing to invest the time and effort after discharge, the real effect of bankruptcy on credit rating translates into this - you can get credit but it will cost you more.
So just what is the effect of bankruptcy on credit rating? It's best to begin by alleviating the fear some people have - bankruptcy does not prevent you from being able to borrow money in the future.
Contrary to what you may have heard life after bankruptcy discharge does not mean you will need to pay cash for a car, a home, or anything at all you might want to buy for the rest of your life.
There are actually banks in Canada right now that specialize in mortgage loans for people who have been discharged from bankruptcy.
It will cost you more to get credit for quite awhile, but you will be able to get it.
The two most common means of scoring a credit rating are the 9 point scale and the FICO score.
With the 9 point system the highest score you can get is an R1 - Pays within 30 days as agreed while the worst is an R9 - Bad Debt, Placed for Collection.
In effect, an R9 rating reflects the purpose of bankruptcy - a chance at a fresh start.
Your credit file will include a notation with the date of your bankruptcy discharge which will remain there for a minimum of 6 years after your discharge.
Calculating a FICO score is pretty complex but the two most heavily weighted variables are the total amount you owe and your payment history.
A surprising outcome of this method is that bankruptcy filers whose FICO score is extremely low before filing don't drop significantly lower after filing.
If you are already near the bottom, how much lower can you go? The simple fact is that regardless of which scoring system is used to rate your credit, bankruptcy is going to have a negative effect on your ability to get credit in the short term.
You can find credit repair help on the Internet that outlines some little known but helpful techniques like adding your own notations to your file.
If the circumstances that led to your bankruptcy were due to extremely unusual circumstances, a note explaining the situation can be viewed positively by some creditors.
If you are fortunate enough to have friends and family open enough to discuss their financial troubles you may have run across someone recently discharged from bankruptcy with an interesting story to tell.
Believe it or not, shortly after discharge some Canadians begin to get credit offers in the mail! How can that possibly be? If the effect of bankruptcy on credit rating is to destroy it in the near term, what is going on? Creditors are in the business of lending money to make money and when some see a person who is virtually debt free, they can be ready to get you back in the game, albeit at an exorbitant cost.
If you have a verifiable and stable source of income, these people see you as potentially a reasonable risk.
There are specific things you can do - such as opening a secured credit card account - shortly after discharge that will allow you to demonstrate your ability to make timely payments and thus prove yourself to be a decent credit risk.
For anyone willing to invest the time and effort after discharge, the real effect of bankruptcy on credit rating translates into this - you can get credit but it will cost you more.
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