Credit Myths That Can Cost You

March 31, 2012 by  Filed under: Bankruptcy 

Your credit score is extremely important to your financial life. As the main determining factor in obtaining loans and representing you as a borrower, a credit score must be well cared for. However, many people often suffer at the hands of several credit myths, which could be damaging to their financial future.

All Debt Is Good Debt

Debt is tricky business and requires just the right balance in order to be beneficial. Having too little or too much debt can both hurt your overall credit standing, which is why finding the right amount can be difficult for many people. Good debt is debt that you can afford to repay, have not missed a payment towards and are maintaining at a reasonable balance. The idea is to have two to three lines of credit that carry balance at or below 30% of the total credit limit. Having too many lines of credit or exceeding this percentage can be damaging to your credit standing.

Filing Bankruptcy Hurts Credit

Many people avoid filing for bankruptcy because of the fear of credit damage. The truth is, bankruptcy does not damage your credit, missed payments and delinquent accounts do. The damage done to the credit of a person filing for bankruptcy happens long before they ever file their petition. Whether a person seeks debt settlement with their lender or files for bankruptcy, the chances of credit damage are fairly equal. Actually, filing for bankruptcy can improve your credit standing. Once your debts are discharged your credit standing is wiped clean, giving you a fresh start at rebuilding a positive credit history.

Closing Accounts Boosts Credit

Many people that are working towards debt resolution assume that they should close accounts when they pay them off. Actually, keeping one to two open lines of credit with a zero, or less than 15% balance, can be beneficial to your credit standing. Creditors want to see that you are not a credit risk, which is displayed by the number of other creditors willing to lend you money. Having an open account with a minimal to zero balance demonstrates that you are a responsible borrower. It also displays your ability to maintain payments and gives you a positive payment history.

Credit After Debt Is Impossible

Although you may find securing a new line of credit after a bankruptcy or debt problems to be challenging, it is far from impossible. In fact, there are numerous creditors who target post-bankruptcy or poor credit consumers. But don’t jump into a line of credit just yet. Whether you are just starting out with your first line of credit or trying to bounce back after debt, you deserve a good line of credit. This takes time and effort to shop around to find the best line of credit. You may need to accept a smaller spending limit in order to get a better interest rate, but remember that credit is a financial tool for your future and not a tool of purchase convenience.

As a Texas bankruptcy attorney, Chris M has had the opportunity to help thousands of people avoid foreclosure, stop wage garnishment, resolve their debts and gain financial stability. The attorneys at the Lee Law Firm understand the toll that financial hardships can take, which is why they offer compassionate services to walk people through the process when filing bankruptcy.

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