Credit Score News, Tips & Advice
Website CertifiedPrivacy Protected
Credit Score News, Tips & Advice « Credit Scores > Credit Score News > Americans Warned Against Bankruptcy After FICO Numbers Are Out

Americans Warned Against Bankruptcy After FICO Numbers Are Out

By Sally Maison
Published: Tuesday, December 15th, 2009

People who recently filed for bankruptcy thought that doing so is the best way to straighten out their financial lives. However, a recent revelation by Fair Isaac and Company, the developer of the most widely-used scoring model, shows otherwise. FICO spokesman, Craig Watts, says a bankruptcy could cause a credit score to plummet by 240 points, enough to send a prime borrower to sub-prime level. Instead of opting for bankruptcy, some finance advisers suggest that consumers are better off if they choose debt settlement.

Americans Warned Against Bankruptcy After FICO Numbers Are OutThere is plenty of good news for consumers who just worked out a debt settlement with their creditor. According to FICO, borrowers who negotiated with their creditors because they can no longer meet their original agreement will only see their credit rating drop by 45 points. Moreover, they will be able to re-establish their creditworthiness faster and easier than those who declared for bankruptcy.

Finance advisers say choosing a debt settlement is the best option for people who are on the verge of going bankrupt. They also note that consumers who seek the help of a lawyer when negotiating with their creditor are more likely to have a successful settlement. Since the impact is minimal, experts tell consumers to negotiate with their lenders instead of letting their loans fall into default. Debt settlement allows a borrower to pay off his debts at lower monthly rates for an extended period. Although creditors still report the plan to credit bureaus, experts say it is not as devastating as a bankruptcy.

FICO recently reported that a consumer whose credit score is around 680 could see his credit rating fall by 45 to 65 points if he requests for a settlement from his creditor. On the other hand, a bankruptcy could have a minimum impact of 130 points. Consumers who have a credit score of 680 are likely to see theirs drop by 150 points. Meanwhile, those who enjoy a pristine rating of 780 could see their credit ratings drop by as much as 240 points.

Industry specialists explain that a debt settlement has a way lesser impact on a credit score than a bankruptcy because a consumer who chooses to settle his debts is still making an honest effort to pay back what he owes to a creditor. However, a bankruptcy consumer simply walks away from his obligations because he can no longer find any means to pay for his debts.

Finance experts say that now it is clear to consumers how much a bankruptcy could hurt their credit score, they must do their best to avoid falling to it.

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.