How Will Bankruptcy Affect My Credit History?

Filing for bankruptcy can have a very negative effect on your credit history, something that can last for a period of up to ten years. Banks and credit unions could outright decline your request for a loan simply because being bankrupt gives the perception that you have a problem with payments and financial management. For the majority of people who file for bankruptcy and find themselves in need of quick cash for emergency situations, they must be ready to accept payday loans, or title loans that do not base loan approvals on credit histories alone.

Note however, that the credit history one had before they declared that they are bankrupt could save them in the eyes of creditors. If their credit history was clean with more assets than debts, then they could be safe. On the other hand, if one had been listed as a delinquent borrower by several creditors, their credit history could suffer a major blow. This means that a person who filed for bankruptcy before their credit piled up could save their credit history. They get a chance to start over, with fresh debts that if managed well, the person is able to live with good financial records even with the looming bankruptcy record on their credit report.

What is “Ghost Credit”?

Ghost credit refers to a situation where one has no credit history. It could be because you have never used credit services, or there simply exist no data of past credit transactions. Due to this, your credit report becomes untraceable to the lenders, so you are like a ghost in the credit affairs. As such, it proves difficult for you to access a loan, get mortgage, or be issued with a credit card hence the saying ‘ghost credit, no credit.’ Some lenders will even treat you as someone with negative credit history. If this happens, it is likely that you will need to seek financing other than through traditional lenders. Generally, the same loans for people with bad credit are also available to those with ghost credit.

The disappearance of your credit history can be brought about by various factors. Examples of such include: living overseas for a long time without leaving an active account back home, your account being deactivated while you are behind bars, or being separated from your spouse without having a credit card in your name.

What Does Your Credit Report Say About You?

Lenders generally ask for a credit report before deciding whether to give out loans. These reports are maintained by the credit bureau. The report is simply a record of your credit activities. In addition to listing any credit-card accounts and loans a person may have, the balances, and how regular they make payments, it shows if any action has been taken against the potential debtor because of unpaid bills.

But what is the implication of the credit report? Well, it gives potential lending institutions a snapshot into the potential debtor’s financial history. It is from this information that they will determine how the debtor handles their current debt, if they pay bills in a timely manner, how many car loans, personal loans, or other types of loans they have and how much they owe.

If the report reveals that the potential debtor had troubles with other lending institutions in the past such that it required assistance of a collections agency, then this will be manifested as a negative mark against them in their report, and as such, it will adversely affect their credit rating. Consumers in this situation must often find alternative financing, such as bad credit personal loans, payday loans, or title loans, until their credit issues are resolved.

So, the main interest of the lender to the report is to see if the potential debtor is a prime candidate to lend money to and the likelihood that they’re going to get that money back. Just a sketchy payment history can be interpreted as negative from the lender and be seen as a risk lending the potential debtor money.

A high debt to income ratio shows that the potential debtor owes more in relation to how much they make, and this is a big concern to for lenders. Similarly, debt cancelling raises concerns that the debtor had difficulty in managing their finances. Since they don’t know how to carefully budget their income to catch up with lagging payments, lenders often find such people not worth giving credit.

Re-establishing Credit with a Car Loan

Car loans can be great opportunities for re-establishing and re-building your credit score. Along with making a car purchase, such a loan will allow borrowers with poor credit to re-establish their credit. People who don’t qualify for any other loan in their name can now be approved. Those who already have a fair credit score and the ones with a bad or no credit score can both improve their score. Bad credit auto loans can be approved easier than the usual personal loans and it will help you later in case you will need a mortgage loan.

Lenders and credit report bureaus look at two things when they check your credit history: revolving credit (which involves home equity loans and credit cards) and installment loans (which can be car loans, mortgages and student loans). However, taking a mortgage loan or a student loan just for building your credit is surely something you don’t want to do. Qualifying for a car loan with bad credit is much easier.