If you are unable to make payments on time for your credit cards, loans and other credit accounts, these delinquencies can have a bad effect on your credit report. Bankruptcy is an option to pursue if you are unable to make any payments, but it has its own effects on your credit.
Credit Score
Your credit score contains information on each of your credit accounts as well as negative information, such as public records of bankruptcy. The numerical score is affected by the amount of time that you have had credit accounts, the amount of credit accounts, the balances on your cards and negative information on your credit account.
Late Payments
A credit account does not get a late notation in its payment history until you are 30 days overdue with your payment. Your credit company may charge you late fees and penalties, but these are not shown on your credit report. Some credit companies may wait until your account is 60 or more days late before the late notation goes on your report. Late payments, especially multiple late payments, bring down your credit score greatly and stay on your report for seven years.
Bankruptcy
Bankruptcy is a legal process that discharges debt or restructures it into a payment plan. A bankruptcy notation on your credit report decreases the score although a bankruptcy alone does not reduce your credit score as much as multiple late payments, collections or judgments, plus the bankruptcy. Because you must wait seven years to refile for bankruptcy, certain lenders may be more likely to lend to you with just the bankruptcy alone.
Advantage
If you are in a situation where you cannot make all of your credit payments on time, the method that least impacts your credit score is making sure that none of your payments is more than 30 days late and filing bankruptcy to discharge the debt. The bankruptcy alone does not have as large of an impact as many late payments, and it's more likely that you can find post-bankruptcy creditors if you need to finance purchases.
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