When someone is facing the possibility of filing for bankruptcy, they need all the good news they can get.
Our Louisville Chapter 7 bankruptcy attorneys are happy to offer some here. A new credit scoring model is going to boost the scores of millions of people who had no credit history, little history or some spots of poor history.
It’s the newest version of VantageScore, the scoring model that is used by the three major credit bureaus – Equifax, TransUnion and Experian.
The really good news for those who have found themselves deep in debt and hounded by creditors is this: Right now, all your debts that are forwarded to collections are a factor in your credit score for as long as seven years. That is the case regardless of whether the debt was ultimately settled.
VantageScore 3.0 will not be factoring those issues into the score if the debt was settled or paid in full. The main thing the agency will be looking for is whether the balance is zero.
The new system also takes into special account victims of natural disasters. In Kentucky, these would primarily be tornadoes, flash floods and severe winter storms. A major example recently involved victims of Hurricane Sandy, who saw their scores take a huge hit in trying to keep up with payments as a result of the hardship.
Under the new model, natural disaster victims will get a credit boost when they make their payments on time – in spite of the difficulties – but they won’t suffer the negative impacts when they need some time to get back on their feet.
Of course, a bankruptcy is going to inevitably impact your credit score, regardless. But the chances are, if you were behind on payments as it was, your score wasn’t great to begin with. The new scoring model means that if you have zero-dollar balances on your collection accounts – which is ultimately the result of a Chapter 7 bankruptcy – you should begin to see some improvement to your score.
Keep in mind, this will matter mostly for lenders that use VantageScore. Most still use FICO, but VantageScore is quickly gaining in popularity, with six of the top 10 credit card issuers and four of the top mortgage and auto lenders using the latter.
Another advantage of VantageScore is that it weights payments for rent and utilities – something for which other scoring models don’t give you positive credit – but will dock you if you fall behind. This gives someone emerging from a bankruptcy more chances to boost his or score without necessarily taking on a high-interest credit card or trying to buy another home – mainly, some of what may have gotten you into trouble in the first place.
There is word that FICO and other scoring models could begin following suit in this regard as VantageScore gains popularity. In fact, FICO recently issued a statement saying it was beginning to explore ways to factor in these so-called “alternative” records for people with limited credit profiles.
All of this is encouraging news for individuals who are debating whether to file bankruptcy because it provides more opportunity for you to bounce back from a lower credit score.
If you need to speak to a Kentucky bankruptcy attorney or Louisville foreclosure defense firm, contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your rights.
New Credit Score Could Help Millions, March 11, 2013, By Blake Ellis, CNN Money
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