Bankruptcy's Effect on Your Credit Score
Both bankruptcy and foreclosure will damage your credit score. However, sometimes bankruptcy is the preferable option when trying to rebuild credit. Here's why:
A foreclosure will damage your credit score for many years, will not get rid of your other debt, and is particularly harmful if you are house shopping.
In contrast, discharging your debts in bankruptcy will harm your credit score, but can help you rebuild your score quicker than after a foreclosure. This is because bankruptcy will leave you solvent and debt-free and therefore able to start rebuilding good credit sooner.
Keep in mind that the current mortgage meltdown and credit crunch (which are prevalent at the time this article is being written) may change the way bankruptcy and foreclosure affect credit ratings.
|