Can You Pay Off Accounts Included in Chapter 7 Bankruptcy to Increase a Credit Score?
- A credit score is a three-digit number that helps lenders evaluate your credit worthiness. FICO credit scores are used by most lenders and the scores range from 350 to 850. The lower the score, the more difficult it is to obtain credit and the higher the interest rate you will pay. It is important to handle your credit properly after a bankruptcy to begin to improve your credit score.
- Once you have an account that is charged off or reported negatively, your credit score will not improve by paying the account off. All accounts included in bankruptcy will show a balance of zero. The bankruptcy relieved you of the legal burden to repay the debt and the creditor will write off the debt. Paying any debt that was included in the bankruptcy is not required and will not improve your score in anyway. According to Craig Watts, a spokesman for the developers of the FICO score, paying a trade line with a zero balance is not going to help your FICO score.
- To improve your credit score after bankruptcy, you need to obtain a credit card. Immediately following bankruptcy, a secured credit card may be your only option. Apply for a secured credit card that reports to all three credit reporting agencies. Make each and every payment on time and keep the balance less than 20 to 30 percent of the credit limit. Over time, add two to three more credit lines. This can be a car loan, mortgage or additional credit card. Use the credit cards periodically to keep the accounts active and reporting to the credit agencies.
- Many consumers are gun-shy about obtaining credit following a bankruptcy. You may be determined to never use credit again, and only pay cash for things you need. This is a great goal to have, but you also must be cognizant of the fact that you may, indeed, need credit in the future. You may face an illness, get laid off, have an emergency or any other event that requires the need for credit. Even if you plan to not use credit, it is important to improve you credit score in the chance you are in need.
