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Rebuilding a credit score after filing for bankruptcy

Ordinarily, by the time a New Jersey resident realizes they are overwhelmed by debt, his or her credit score has taken significant hits. Many people believe that filing for bankruptcy will forever damage their credit score. It is true that bankruptcy may adversely influence a person's credit score, but not necessarily to the extent that most people believe.

The majority of the damage to a credit score is already done by the time a person files for bankruptcy protection. Payment history comprises a full 30 percent of a person's credit score. Therefore, late payments, delinquent accounts and having too many revolving accounts (such as credit cards) can adversely affect a person's credit score.

After a bankruptcy is completed, the damage to an individual's credit score done by the bankruptcy and the discharged debts typically abates. It is at this point that the individual can begin rebuilding his or her credit score. In time, timely paid installment loans -- such as car loans and mortgages -- can help a once falling credit score begin to climb.

When used with caution, revolving accounts such as credit cards can help raise a credit score. Having one credit card with a manageable limit fulfills this need, if desired. However, in order to improve a credit score, it must be paid on time and typically at more than the minimum payment or in full each month.

These credit-building efforts require a balanced approach. Too much debt can also negatively affect a person's credit score since 30 percent of a credit score is said to relate to the amount of debt a person is carrying. Filing for bankruptcy may stop the downward spiral of a New Jersey resident's credit score, but only if that credit is responsibly managed afterward. Having the time to sit back and objectively review one's financial situation and make plans for the future is one of the benefits filers could gain from the experience.

Source:, PERSONAL FINANCE: How to earn a good credit score, John Ninfo, Jan. 9, 2014

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