How Can Filing for Bankruptcy Improve Your Credit Score in Ohio?
If you’re like many people, you may be hopelessly in debt. You struggle to pay your debts each month due to rising expenses. Missing even one payment can sink your credit score. If you have an account that goes to a collection agency, you could find yourself in a world of trouble. Legal fees and interest rates continue to pile up. You dread the idea of filing for bankruptcy, but it may be your best bet. How can bankruptcy begin to improve your credit score?
Get Lenders off Your Back
Your lenders won’t be able to harass you for payments once you file for bankruptcy. All calls regarding your debt must be handled by your attorney. You can start saving up as much money as you can to repay your debts later on. Credit card debts and consumer loans will disappear, and you will have a fresh start in your financial life. You may not be able to get the type of loan you want right away, but your credit score will improve sooner rather than later.
Decrease Debt to Income Ratio
Debt to income ratio is an important factor to consider for your credit score. The less debt you have to pay each month, the more you can afford to save. If you can save more money, then you can also pay more money toward debts that aren’t discharged in bankruptcy, such as student loan payments. A good rule of thumb is to avoid having more than 20 percent of your monthly income dedicated to debt payments. Below 15 percent is even more ideal.
On Time Payments
Once your debt is reduced through bankruptcy, you can begin to make your payments on time. 35 percent of your FICO credit score is determined by your payment history. If you make payments on time for a year, your credit score should improve dramatically. You should also use the bankruptcy to your advantage. Once you open new lines of credit, keep your balances low. If you maintain credit card balances below 30 percent of your credit limits, you will achieve a better score.
Bankruptcy is not an immediate solution for a better credit score. But it will help you get there faster by giving you a cleaner slate to work from. If you have fallen behind on payments, you shouldn’t hesitate to file for bankruptcy. You’re not a loser. You only lose the day you stop fighting. Bankruptcy is a big step in the fight to restore your finances.