Friday, December 09, 2016

Rebuilding Credit After Bankruptcy – Understanding How Credit Scores are Calculated

The FICO Credit Score can range from 300 to 850.  Many borrowers may not even understand how their credit score is calculated.  Let's take a look:

Your FICO score is determined by the following percentages:

30% = Capacity
35% = Credit History
15% = Length of Credit History
10% = Mixture of Credit
10% = New Credit

Capacity: This is the amount of debt you owe.  This is an indicator of how you borrow money and your credit risk.  For example, if you have credit cards all pushing towards the maximum limit, your credit score is going to significantly drop.  If you have credit cards that are below 50% of your credit limit; your credit score is going to increase.

Credit History: This is your borrowing pattern.  If you have habitual late payments; it is going to show on your credit report.  Each time you are late for example it is going to show up on your credit report for 2 years. 

Length of Credit:  This is the age of your credit lines.  What is the oldest credit line you have?  Do you have numerous credit lines opened at one time; this could affect your score negatively if the debt you have acquired is new and numerous.  However, the longer you have had credit established, the better your credit score.  This is true even after bankruptcy because the year you originally began establishing credit (before bankruptcy) will still be notated on your credit report.

Mixture of Credit:  What type of credit trade lines do you have?  Do you have both secured and unsecured debt?  Your score improves, for example if you have had at least 2 secured trade lines (auto, house) and 2 unsecured trade lines (personal loans, credit card)

New Credit: This can actually affect your FICO score negatively.  Every time you have a institution pull your credit, your score will drop minimally 2 points.  This also stays on your credit report for 2 years.

This may look like a daunting task after you have been discharged from bankruptcy; but it is your fresh start and you can slowly rebuild your credit again like you once did before you began originally establishing your credit.  We are excited for you; it is a new beginning!

Check out more valuable information about Guam's Laws and working with Mark Williams, Guam's Best Lawyer, on Dededo Law Office's website,

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