One of the reasons consumers with debt avoid bankruptcy as long as possible is because of the fear of what can happen to your credit rating afterward. The truth of the matter is, sometimes the debt itself does more damage to your credit score than the bankruptcy. Here are some things to consider that may be hurting your credit the most.
It isn’t just one or two late payments on bills that damage your credit score the most. It’s when there are patterns of late payments, especially more than 30 days late. Often when we get behind in our debt, it’s difficult to ever catch up, resulting in late payments that keep rolling over into the next month. On a credit report, this can appear as months and years of paying late and affects your credit negatively. It is also difficult to repair the effects of so many late payments, even if you do eventually get caught up. Your late payments account for more than 30 percent of the credit score calculation, which means it is one of the major factors hurting your rating the most.
If you’ve found yourself using loans and credit cards to pay bills or have been juggling balances from one to the other, you’re likely at a point where most of your credit is maxed out. Even if you make your payments on time, your credit utilization accounts for a large part of your credit score and the amounts owed can hurt your credit in a big way. Further, you probably won’t be able to pay down the balances to a suitable utilization ratio, especially if you’ve struggled to make the minimum monthly payment. If you have accounts where the amounts owed in relation to the available credit are too high, these accounts are hurting your credit.
Too Many Inquiries and New Accounts
Often, the first solution when consumers face overwhelming debt and difficulty paying bills is to open a new line of credit to help alleviate some of the pressure. However, this, in combination with maxed out cards, can hurt your credit. Too many inquiries or applications for new credit, as well as a large number of new accounts, can raise a red flag indicating that you are in trouble and at risk of defaulting on your debts. Opening new accounts might help you cover bills in the short-term, but in the long run, it will cost you more and result in more damage to your credit score.
In most of these situations, juggling your current accounts and figuring out ways to cover your bills can be more damaging to your credit score than just starting over and filing bankruptcy. If your concern about filing bankruptcy is the effect it will have on your credit rating, make sure you consider the damage caused by not filing.
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