Should I Try to Fix My Credit or File Bankruptcy?

You can damage your credit by making late payments on your debt obligations or by falling behind to the point wher e catching up becomes difficult. If the situation is relatively minor, you can take steps to repair your credit on your own. However, if your situation becomes more severe, you may need to take more drastic measures such as filing for bankruptcy, although this should be your last resort.

Credit Repair First

In general, seek to repair your credit before filing for bankruptcy. Repairing credit will improve your credit score, while bankruptcy causes it to plummet. A bankruptcy also remains on your credit report for up to 10 years, limiting your ability to obtain affordable credit. Credit repair actions such as ordering free copies of your credit report at AnnualCreditReport.com and having errors removed, as well as making a plan to repay your debt, can put you on the path to fixing your credit.

Staying Current

In addition to developing a plan to pay off your debt, an important step to repairing your credit is to make sure you are making all payments on time, even if you can only make the minimum due each month. According to the MyFico website, the factor that carries the most weight in determining your three-digit FICO score is your payment history. If you've made late payments in the past, getting into the habit of making payments on time will improve your score.

Debt Settlement

If your financial situation has deteriorated to the point where you've fallen several months behind on your payments with little chance of getting caught up, your credit score has probably already taken a significant hit. If your major problem is credit card debt, the company may be willing to negotiate a settlement where you repay less than what you owe. Send the company a simple financial statement listing your present assets and income as well as your debt obligations to support your case. While settling a debt may cause your score to drop further, reducing your debt obligation by making timely settlement payments should help it rise again.

Last Resort

If your situation is so dire that even debt settlement is not an option, filing bankruptcy may be your best choice. Depending on whether you qualify for Chapter 7 or Chapter 13, you'll able to wipe out all eligible debts or need to repay only a portion of your obligation. The purpose of bankruptcy is to give you a fresh financial start, and you'll be able to begin the process of rebuilding your credit.