Bad credit really is a broad term.  Bad credit is a descriptive term that refers to less than perfect credit but bad credit really is in the eye of the beholder.  Credit may be bad to some and okay to others depending on who’s asking.  If you have been extended any type of credit in the past and been unable to pay on the required terms you may have bad credit;  But it’s not that simple.  First of all, there are a thousand and one variables. Your credit history is a compilation of credit that has been extended to you if the form of credit cards, auto loans, home loans, and personal loans over time.  Most of your credit only shows up in your credit file for seven years from when it was reported.  If an institution or creditor does not report to any of the three main credit bureaus it probably won’t show up on your credit at all.  Some derogatory items on your credit that are usually not considered “credit” until they show up because they are very past due and in collections.  These can include utility bills, phone bills, cable bills, hospital bills, and even fines can show up on your credit.  One interesting thing to note is that you may have a dozen hospital bills that show past due, but if you’ve made all of your car payments on time it will be easier to get a car loan. I once talked to a lender who said “I don’t care how they paid their cable bill I just want to know that they are going to make their car payment.”

Here’s another thing to consider. There are three main credit bureaus, TransUnion ™, Equifax ™, and Experian ™. They will all have slightly different information reported on them and sometimes very different scores as you may already know.  Did you know however, that your credit score will vary depending on what type of credit you are applying for?  If you apply for a credit card you may have a 625 TansUnion ™ score but when you apply for an auto loan your TransUnion ™ score is 601. This is because the credit bureau tries to determine how likely you are to pay on the required terms of each different scenario. You may have had a credit card that average payments were $80 a month and paid every payment on time but when it came time to make your $407 a month car payment you were late a few times. The biggest determining factor in determining whether or not you get a loan is not so much your score but your “credit history”.

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A bankruptcy is a legal process to eliminate your obligation to pay some or all of your debts. The two most common types of bankruptcy are chapter seven bankruptcy and chapter thirteen bankruptcy. In a chapter seven bankruptcy, you are being released of your obligation to repay most bills, collections, and judgment completely. In a chapter thirteen bankruptcy, you will be required to repay a large part of your debts, without interest over several years. This is common if you have too many assets to declare chapter seven.

Many people want to get out from underneath many of their bills or collection accounts. Sometimes due to uncontrollable events a person could find themselves with more debt than they can pay back in a reasonable amount of time. Before you declare bankruptcy, there are a few things you should consider.

First, will it be impossible to get your budget under control without bankruptcy? Many times if you just rearrange things you’ll find that with a little sacrifice you can get out of debt in a few years.

Second, are you ready to have a very negative brand on your credit bureau for many years? Once you are out of a bankruptcy you don’t start at the beginning again you start below that, with no positive credit, And with the black mark of a bankruptcy on your credit. 

Next, has the situation that caused you to get into all this debt and bad credit changed? If you are still not making enough or still incurring large bills you can’t handle, get divorced, or any other thing that will make it difficult to get through without picking up some big debt, don’t do it. There aren’t many good reasons to declare bankruptcy now and then end up in the same predicament later with worse credit. 

Finally, are you prepared to change? Many people that declare bankruptcy are in this situation because they were not responsible. Maybe they used a credit card too much, bought things that weren’t in their budget, or maybe they didn’t feel like paying their bills because they wanted to use that money for something else.

You need to be completely ready for a bankruptcy, it’s after effects, and the road ahead if you are going to consider a bankruptcy. Getting into a bankruptcy before you have taken a careful look at the situation will lead you back to the same rut you are in now, maybe even worse.