As of 2009, bankruptcy filings that were new increased by over thirty five percent in just one year. Although it may seem like a dismal sign, a good way to look at it is that all of these people are on their own paths to rebuilding their credit scores and ultimately, financial freedom. We have all seen commercials with “people just like me and you” telling us to go to whichever website and look at our credit score. We know that if the number is high, it’s a good thing. It it is low, it could mean trouble finding a loan, getting a job, or a new place to stay. But just what is a credit score?

Your credit score is packaged up in one (hopefully!!!) three digit number that is based on a statistical analysis of your very own personal credit file. A credit score’s purpose is to give you a major headache, and for the banks to review your capacity to take on debt and repay a credit obligation. That is why credit card companies and banks will look over your score to figure out how much credit they want to decide and offer you and at what interest rate.

So how is your score determined? The Fair Issac Corporation, or as you may know them, FICO, was the first organization to create a scoring system in 1958. The report recently underwent a makeover (FICO 08) but it’s not used by all agencies. In this new, improved FICO 08 version, minor credit delinquencies are not counted against you when you for the most part do a good job repaying your debts.

There are five questions that a credit score asks. What is your payment history? How much debt do you currently owe? Just how long have you had credit? How many times have there been credit inquiries made on your report? And what type of credit do you have? So let’s say, for argument’s sake that you screwed up. Just how long will negative marks impact your credit score? Well, that depends on the type of information. Plain old negative information can stay on your credit report for up to seven years. In the case of bankruptcy filing it can remain on there for up to ten years. Here is where we get into the creepy big brother aspect of credit reports. Every person has their own personal credit file, and what this means is that the impact from person to person will affect each differently.

If you are considering filing for bankruptcy, concerned about your financial situation, or just want to know more and feel more secure, it is in your best interest to seek out the advice of a financial planner. One that works for a fee is preferable, because they will have your best interest at heart and not their commission instead. Good luck in your financial journey!

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