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New Jersey bankruptcy: Credit scores may be sunk by credit cards

Most New Jersey consumers know that their credit score can affect whether they get a home loan, a new car, or even a new credit card. What most consumers are not aware of is that being delinquent on credit cards can have a larger effect on your credit score than any other type of debt. For families that are struggling with their debt, bankruptcy may actually save their credit score.

When a consumer becomes delinquent in payment of a debt and it is reported to one of the three consumer reporting agencies, a certain amount of points are deducted from that consumer's credit score. For a debt such as a mortgage, car loan, or student loan, that hit only happens once per delinquency. However, when a consumer is behind on numerous credit card payments, each one of those creditors is reporting to the credit agencies.

If a consumer is behind on multiple credit cards, that person's credit score is taking multiple hits. A person who has come into hard times and is struggling with paying their bills could go from having stellar credit to poor credit in no time. The person who is paying their mortgage, but is behind on three credit cards could end up with a worse credit score than someone who is paying their credit card bills but is behind on their mortgage.

When a New Jersey consumer files for bankruptcy protection, credit card companies and other creditors stop reporting delinquencies to the credit agencies. This has the effect of stopping those multiple hits to a consumer's credit score. This is just one of the many benefits consumers receive when they file for bankruptcy protection. As the name implies, bankruptcy protection is there to protect consumers who, through no fault of their own, are struggling with their debt. Bankruptcy provides consumers with a much needed fresh start for the consumer and their credit score.

Source: Bloomberg Business Week News, "Credit-Card Debt Can Sink Your Credit Score," Elizabeth Dwoskin, Dec. 14, 2012

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