Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What are the pros and cons of bankruptcy ?”
How bad does a credit score have to be to be bad?
The short answer is it depends, but let’s begin with the basics: What is credit? Credit, in short, is you. You don’t have any money, but you need it. So you go to someone who has money: a lender. You ask the lender for money, and in return, you promise to pay the money back, with interest. Interest means you will pay the lender a little extra when you repay the money loaned to you. This sweetens the deal for the lender and induces the lender to loan you money.
The lender you ask for a loan doesn’t know you, so how can the lender be sure you will repay the money? To answer this question, the lender turns to one of three (or all three) consumer credit reporting companies. These companies are called Equifax, Experian and TransUnion. They gather all kinds of information about ordinary (and extraordinary) Americans like you. They know whether you’ve paid your bills (or not), whether you’ve repaid loans (or not), whether your payments were on time or late, whether you’ve gone through bankruptcy and whether a house you own has ever been foreclosed upon.
After all that information is compiled, these companies—called credit bureaus—assign a number to you between 300 and 850, with 300 being the worst and 850 being the best. Someone with a score in the 700s has “good credit.” That means the person has a history of paying bills and repaying debts. The person is a good candidate for a loan. Lenders may be less inclined to give loans to people with bad credit because their credit history may show they have taken out loans and been unable to repay them.
The company that provides software and analytics technology to the credit bureaus and which has, in essence, designed the modern credit score, is called the Fair Isaac Corporation. Fair Isaac, also known as FICO, made headlines this week when it announced that it was changing its credit-scoring system. Now when your credit is scored, you will not be docked for unpaid bills as long as you have resolved them. This could be a deal-changer for over 9-million Americans who have a so-called “payment collection” on their account that has a zero balance. Unpaid medical bills will not carry as much weight under the new system.
This could mean that millions of people who couldn’t get a loan or a credit card now may find credit accessible to them. One California lawyer who specializes in consumer-protection class-action lawsuits says the change isn’t necessarily a good thing. “A lot of people just can’t handle credit,” said Howard Strong. He told The Wall Street Journal that the FICO change may just lead consumers to dig deeper into debt.
While FICO and credit algorithms may be complex, one former FICO manager said some very simple steps can be taken to improve and manage your credit score. The manager told Time Magazine that consumers should pay their bills on time, keep credit balances low, settle any old debts and prove to lenders they are not risky borrowers by building up a credit history.
If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.
About the Author
Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.
Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.
In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.
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