How Much Does Chapter 13 Lower Your Credit Score? Your credit report is a collection of personal information and financial data about you. Your credit report displays a number called your “credit score,” which is calculated based on how often you made full and timely payments on your utility bills, student loans, car loans, or other payments. Other factors that impact your credit score include lawsuits, foreclosures, liens, and – as our Sacramento Chapter 13 attorneys will be discussing in this article – bankruptcy. There are a few different systems for rating credit scores, such as the FICO score range scale and the VantageScore range scale. However, speaking generally, credit scores are divided into the following categories:
Excellent – 720 or higher
Good – 690-719
Fair – 630-689
Poor – 629 or lower Lenders use your credit report and credit score to assess the risk of giving you a loan, which means your credit score affects the types of loans you can qualify for. The more payments you make in full and on time, the higher your credit score will be, and the easier it will be to obtain a loan with a competitive interest rate. On the other hand, a history of delinquent or partial payments will chip away at your credit score, making it harder to qualify for desirable loans. Like a string of delinquent payments, a bankruptcy case will also have a negative effect on your credit score – at least in the short term. Depending on what your credit score was before you filed bankruptcy, your score might temporarily drop anywhere from about 130 to 240 points. Generally speaking, the higher your score was prior to bankruptcy, the more it will drop when you file Chapter 13 in Sacramento. However, that does not necessarily mean all lenders will be unwilling to offer you a loan. Unlike Chapter 7 bankruptcy, which is meant for debtors who have limited financial resources, Chapter 13 is meant for high-income debtors who have the financial means to direct their disposable income into monthly payments for a period of up to five years. Because Chapter 13 requires commitment to a long-term repayment plan, lenders may look more favorably upon Chapter 13 debtors than Chapter 7 debtors.