There are many reasons why good people have bad credit. Divorce, job loss, and unexpected expenses such as catastrophic medical care and major home repairs can all cause what seems like irreparable damage to even the most financially responsible people. But the damage caused by late payments, defaulted payments, and wage garnishments is nothing compared to the damage that bankruptcy can do to your credit rating.
It’s All About the Rating
Your credit rating (or, more importantly, your FICO score) is based on a combination of factors such as your debt to income ratio, your past and present payment habits, and the number of defaulted, or “bad”, debts you’ve incurred. As most people know, failing to make credit payments on time, defaulting on your payments, and negative changes in your income will all affect your score. The lower your credit rating, the less likely you will be to get credit at a reasonable rate – or at all. And, in the worst case scenario, the individual who has found himself completely unable to manage his or her credit payments might be forced to declare bankruptcy.
Creditors hate seeing bankruptcy on your credit report. Even worse, a bankruptcy filing, which remains on your credit rating for a decade or longer, might influence whether or not you get the job you want, and even if you can rent property. Employers and landlords now look closely at your credit rating as a way to gauge you as an employment and rental risk. For these reasons, it’s important to look for bankruptcy alternatives whenever possible.
There are actually several alternatives even if you feel that your credit rating is beyond repair. The goal of the credit company; whether it is a loan company, credit card company, or other creditor, is to recoup as much of what you owe as possible. To that end, most creditors realize that bad things happen to good people and are willing to work with you to negotiate your debt and/or lower your payments to a level which you can reasonably manage.