How-Does-Bankruptcy-Affect-Your-Credit-Report-Consumer-Debt-Help

How Does Bankruptcy Affect Your Credit Report

Bankruptcy is a legal status of a person who cannot repay their debts. You can apply to a court to declare yourself bankrupt, or sometimes, creditors will ask a court to make you bankrupt. It’s worth knowing that while bankruptcy may help to clear your debts, it can also have serious implications on your life, including your credit score. Most debt advisers see bankruptcy as a last resort, after you have tried other routes to clear your debt. A bankruptcy status stays on your credit report as public knowledge for at least six years, which can have implications when you apply for credit or loans, or even a mortgage. So how does bankruptcy affect your credit report?

Table of contents:

    What Is A Credit Report?

    Your credit report is a overview of your financial life. It’s full of information about you including whether or not your pay your bills on time, how much debt you have and if you are bankrupt.

    In the UK, there are three main credit reference agencies, Experian, Equifax and Callcredit. Each agency can obtain information about you from banks, lenders, utility companies and others.

    Your Legal Rights

    Legally, you can get a copy of your credit report for free every year from the agencies if you want to see it for yourself. This is actually a useful idea if you want to keep on top of the money you owe to people, it can also help you to set a realistic budget. Each agency should also list how long they will keep your information for.

    What Is The Purpose Of A Credit Report

    If you want to borrow money, perhaps a loan for a car, a washing machine or a personal loan, then the bank or lender will look at your credit report. This tells them how good you are at managing money, or if you have delays with paying it back. So the bank or lender will use your report to help them decide whether or not to loan you money, as well as what interest rates they offer you.

    For example, if you have a good credit score, it’s more likely that you will get an approval for your loan along with an average or low interest rate. Whereas if you have a low credit score, a lender might still loan you money, but it will be at a much higher interest rate because you are more of a risk.

    Other businesses can look at your credit report too. Including companies who offer insurance, TV, internet, utilities and mobile phones.

    Can Employers Look At Credit Reports

    Employers can legally look at the public information part of your credit report. This often comes under ‘background checks’ as it can be used to verify your identity and background. However, it will also provide a very quick overview of how you handle your money. Hence if there is a bankruptcy status on your file, then this is public knowledge and an employer will be able to see it. But they cannot use it to discriminate against you or make decisions about your job.

    How Does Bankruptcy Affect Credit

    So how does bankruptcy affect your credit report? By declaring bankruptcy, you are entering into a legal court process because you have no other way of clearing your debts. Often, bankruptcy is seen as a last resort if all other debt solutions are not suitable. Simply put, it shows that you struggle to pay off your debts, for whatever reason.

    On the same day the court declares you as bankrupt, the status goes on your credit report. From that day on, the bankruptcy status will stay on your file for at least six years.

    However, it is possible that you manage to clear all your debts within the bankruptcy process. If this is the case, it will show up on your credit report as bankruptcy with a minus sign in front of it. So anyone looking at your financial history can see that you are no longer in debt.

    What Is A Credit Score

    A credit score is a number that lenders use to help them decide how likely you are to pay back your loan. This summary is called your credit rating. It doesn’t go on your report, but forms part of the information used by UK credit reference agencies.

    Your credit score is a number between 300 and 850 that represents your credit worthiness. For example, the higher the score, the better you look to potential lenders. The lower the score, the lower the credit rating and the riskier it is to lend you money. The total score is based on your credit history, open accounts, total levels of debt and repayment history along with other factors.

    How Long Does Bankruptcy Status Stay On File

    So how does bankruptcy status affect your credit report and how long does the status stay on it? Well typically, it’s at least 6 years, and in some cases it can be up to 10 years. A bankruptcy status causes serious damage to your credit score until it’s taken off. Hence it may lead to difficulty if you’re applying for a mortgage, a personal loan or a car loan for example.

    Remember though, you can take steps to improve your credit score. For example, if you pay off all your debts within the bankruptcy process, then the status could come off your report within a year.

    Another tip to improve your credit score is to make payments on time. This shows a lender that you are working hard to achieve a better credit rating. Whereas if you miss payments or delay them, then it can cause even more damage.

    Finally, after you have discharged your bankruptcy, make sure you check each one of your credit reports again. Check that all the details are right and the payments and balances on each account are correct. If there are any discrepancies, contact the credit agency and ask for your details to be changed. Even though you have been through bankruptcy, it’s important that your details are now up to date so that your credit score can improve.

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