Category Archives: credit rating

Denton Bankruptcy Attorney: INACCURATE CREDIT REPORT

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Denton Bankruptcy Attorney:  Three out of four credit reports contain inaccurate information.  These errors include mistakes regarding missed payments, incorrect balances on accounts, and even statements that you owe money to a creditor when you don’t.  In order to remove these mistakes from your credit report, first you need to know that they exist.   A free credit report can be obtained from www.annualcreditreport.com or by calling 877-322-8228.

 

Now that you have a copy of your credit report, read it carefully and identify inaccurate information.  The Fair Credit Reporting Act provides a way to challenge mistakes on your credit report.  Contact the credit agency whose report contains the incorrect information and ask for information regarding their procedure for disputing entries on credit reports.  Once disputed, the creditor must file a response within a certain period of time, and if no response is filed the inaccuracy is automatically removed from the credit report.  This is a process you can do yourself, but it can be time consuming.  There are companies that will assist you with disputing entries on credit reports for a fee.

Dallas Bankruptcy Attorney: ADD A STATEMENT TO YOUR CREDIT REPORT

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Have you ever had something happen that made you look bad, and you would have liked to explain yourself, but were never given the chance?  This happens on credit reports all the time.  You might have a great credit rating with no bad notations on your report for years, and then you lose your job.  A few months later, you are behind on your credit card, mortgage, and car payments, and your credit rating takes a hit.  After you find a new job and start making payments again, the blemishes on your credit report are still there, and they can stay there for seven years!

 

There is a provision of the Fair Credit Reporting Act that allows you to add a 100-word statement to your credit report.  You can use this statement to explain that a bad notation is a mistake, dispute the information on your credit report, or simply to explain that you just went through a tough financial period but things are better now and you are making your payments on time.  Keep in mind that this explanation will not increase your credit score, but it may give lenders more confidence in your ability and intent to repay debts in a timely fashion.  Make sure that the statement is provided to each of the big three credit agencies which are Experian, Transunion, and Equifax.  Each agency has their own procedure for adding consumer statements to credit reports, so be sure to contact the agency to find out their requirements.

BANKRUPTCY: YOUR CREDIT REPORT AFTER DISCHARGE

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You filed bankruptcy.  You filled out all the paperwork and met with your attorney.  You attended a meeting with a trustee and eventually received a discharge.  Now what?  Well, the good news is that you are debt-free with the exception of any non-dischargable debts you may have and debts you did not wish to discharge.  Unfortunately, no one told the credit agencies, and your credit score and ability to obtain credit are suffering as a result.

After filing bankruptcy and receiving a discharge, debtors should contact the three main credit agencies (Transunion, Equifax, and Experian) and request that all pre-petition debt be removed from their credit report.  Reaffirmed debts or debts listed as “pay direct” in a Chapter 13 plan should not be removed.  These debts are still the responsibility of the debtor and will help them improve their credit score by establishing a record of making payments in full and on time.  Cleaning up credit reports following a discharge is an important part of improving a debtor’s financial situation.  Doing so will allow debtor’s to improve their credit score and obtain cheaper credit.

HOW DOES BANKRUPTCY AFFECT MY CREDIT RATING?

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I’m often asked about how filing bankruptcy will affect a person’s credit rating.  By itself the act of filing bankruptcy has a negative impact on a credit rating.  Filing bankruptcy will negatively impact your credit report for 7 years following filing Chapter 13 bankruptcy and for 10 years in a Chapter 7 bankruptcy case.  But to understand the actual effect on a credit report of filing bankruptcy we need to understand what factors have positive or negative affects on a credit score.

 

The primary factors that affect your credit score positively include:

 

  1. Your history of paying your bills on time and in full
  2. Using 25 percent or less of your available credit
  3. Steady employment.

 

The primary factors that affect your credits score negatively include:

 

  1. A history of paying bills late or not at all
  2. Using more than 80 percent of your total available credit
  3. Bankruptcy
  4. Liens or foreclosures
  5. Periods of unemployment
  6. Requests for new lines of credit

 

As you can see, bankruptcy is just one factor that is considered in determining a credit score.  In general, by the time most people make the decision to file bankruptcy, they have already had a period of time where they have been paying bills late or not at all and have maxed out their lines of credit.  Their credit score is already poor.  Many debtors find that soon after receiving their bankruptcy discharge, their credit rating is higher than it was before filing bankruptcy because the negative effect of filing bankruptcy may be less detrimental to a credit score than having maxed out lines of credit and a history of paying bills late or not paying at all.  More importantly, after receiving a discharge, debtors are in a better financial situation, and better able to pay their bills on time establishing a positive payment history and improving their credit score.  The bottom line is that for most people filing bankruptcy will help them to improve their credit score.

FILING BANKRUPTCY MAY IMPROVE YOUR CREDIT RATING

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Many people do not file bankruptcy because they fear that it will ruin their credit score.  The reality is that by the time most people start thinking about filing bankruptcy, they already have a poor credit rating, and for those people, filing bankruptcy may in fact improve their credit rating.

There are several reasons why debtors who file Chapter 13 bankruptcy may notice that their credit rating improves soon after filing bankruptcy.  First, Chapter 13 bankruptcy reorganizes debts through a plan that allows repayment of a portion or all of the person’s debts in a way that they can afford.  By making payments on time, debtors begin to improve their credit score.  Second, many debtors file Chapter 13 bankruptcy in order to stop foreclosures.  A Chapter 13 bankruptcy filing looks much better on a credit report than a foreclosure.  It indicates to creditors that the debtor is trying to repay their mortgage arrears, rather than simply defaulting on their mortgage loan.

 

Chapter 7 bankruptcy will usually improve a debtors credit rating as well.  Chapter 7 bankruptcy cases are generally completed within four or five months after filing the case.  After the debtor receives a discharge, their credit report is largely wiped clean, and the records of unpaid debts and late payments are removed from their credit report.

 

If your goal is to improve your credit rating, bankruptcy should be considered.  I speak with dozens of people each month about their financial situation, and for many of them bankruptcy is not the best choice.  Everyone’s financial situation is different, and it is important to consult a competent bankruptcy attorney before deciding to file bankruptcy.