Understanding your Credit Score

credit scoreYour credit score may not seem to have a big impact on your day-to-day life. However, when you need to buy something on credit, that number can play a major role in the interest rate of the loan and whether you even qualify for the loan.

How Important is Your Credit Score?

  • It affects whether or not you can get credit and at what rates.
  • It can affect your ability to get a job or rent an apartment.
  • It can affect your insurability.

What’s In Your Score?

Your credit history contains information about your credit-worthiness. Your score is calculated using a proprietary formula based on a number of different factors including:

  • Your payment history:
    A history of late payments, collection activity, and adverse public records such as wage garnishments, liens, and bankruptcy may all have an adverse effect on your final score.
  • The total amount of debt owed:
    Using a large proportion of your available credit may have an adverse effect on your credit.
  • The length of your credit history:
    A series of established lines of credit tend to be more beneficial to your final score than new accounts.
  • New credit lines:
    New lines of credit may have either a positive or a negative effect on your credit, depending on the type of credit and how they are used.
  • Diversity of credit:
    A mixture of secured and unsecured credit can be attractive to creditors.

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Your final score will be calculated based on the many different factors contained in your report.

Rebuilding Your Credit Score after Bankruptcy

While it’s undeniable that bankruptcy can have a serious impact on your final credit score, it isn’t nearly as detrimental as many believe. In fact, because bankruptcy in essence wipes the slate clean, you may even end up with better credit than before you filed for bankruptcy.

Once your debts have been discharged, you can begin to rebuild your credit history by:

  • Applying for unsecured and secured credit
  • Paying each bill promptly and, if possible, in full every month
  • Applying for an unsecured line of credit
  • Once you have established a positive payment history in your secured line of credit, you may be able to qualify for an unsecured line of credit to start slowly rebuilding your credit
  • Applying for a larger loan, such as a vehicle loan.

If you are ready to learn more about how bankruptcy can provide you with a fresh financial start and get you on your way to rebuilding your credit, contact the Albuquerque bankruptcy lawyers at Melwani Law today for a free initial consultation.