Arizona bankruptcy filers have a love-hate relationship with their credit. It can lead to the stress and pressure felt by financial problems, but it’s needed to buy a house or car. If you’re thinking about filing for bankruptcy, you think it’s going to destroy your credit forever. Is filing bankruptcy really a 10 year mistake for the people of Arizona?
Getting new credit is all about the FICO score and a lender’s policy on lending. A high score is good credit and a low score is bad credit. How the score is calculated is a trade secret so the key is in learning the causes of a low score.
When one of your accounts is 30 days late most creditors will report it as delinquent. Each late payment can stay on your record for 7 years. If you miss a payment in 2011, it will be there until 2018. Miss another payment in 2012 and it will be there until 2019.
If you’re 180 days late then the account may be “charged off,” which is nothing more than an accounting term that allows the creditor to take the account off their active books. The charge off gets reported for 7 years too.
Eventually the account will be sent to collections. That gets reported for 7 years.
The 7 year rule is a moving target. And with more Arizona consumers falling behind every month, that moving target is going pretty quickly.
If you want to stop the ticking time bomb, you’ve got two options: pay or bankruptcy.
If you decide to finally buy a home and stop renting, there’s no lender in Arizona who is going to look the other way and give you the mortgage in spite of the fact that you’re not paying your debts. As one of the fastest-growing states in the nation, Arizona lenders can afford to be picky.
Can Bankruptcy Help Your Credit?
The FICO score is designed to predict how likely you are to repay a new loan. Because bankruptcy eliminates most debts, you may find that your credit score actually rises after bankruptcy.
A new lender doesn’t have to worry about the old accounts interfering with your ability to pay a new account.
A good rule of thumb is to look at the FHA Guidelines for buying a house. Their current rule is that 2 years after receiving a bankruptcy discharge in Chapter 7 you can buy a house. That goes for people in Arizona as much as anywhere else in the nation, even with our high foreclosure and default rates.
If the FHA is willing to give you clearance to take on so much debt after filing bankruptcy, don’t you think that most banks doing business in Arizona would do the same for a credit card or car loan?
If you’re thinking about filing bankruptcy, ask yourself where your credit score will be in two years. If you do nothing, will it be better than if you end the pain now and begin to re-build? That’s your analysis.
Image credit: jcarter