It might seem counterintuitive to say that bankruptcy could benefit your credit rating. However, it can be true, given time.
Let’s look at why.
Doing nothing will worsen your credit score
Let’s say that you cannot meet all your bills. You might try taking on more credit to keep yourself afloat. However, unless your expenditure drops or your income increases, your situation will not improve. Rather, you will have even more debt, making it even more likely that you miss payments.
When creditors start to consider you too much of a risk, they will refuse your applications for further credit causing you to make more applications – all of which will be noted negatively on your credit score.
Every time you miss a payment, your total debt will rise because lenders will charge fees and penalties. In addition, the longer a debt goes unpaid, the more interest you accrue on it. So doing nothing will inevitably make your debt and your credit score worsen.
Bankruptcy will initially harm your credit score
Don’t be mistaken. Your credit rating will take a hit after you file for bankruptcy. However, if your filing is successful and bankruptcy removes your debt (or reduces it to an amount you can handle), you can slowly start to rebuild your credit score from there on in.
Taking out new credit cards or loans could help you build your credit rating back up, little by little, provided you make all due payments. Note, new credit might only be an option with certain lenders who specialize in this. Standard lenders may not be prepared to offer you credit for some time.
It may take a while to build your credit rating back up to a good level, but the sooner you start, the sooner you can get there. Seeking guidance to find out more is a good place to start.