Illinois Chapter 7: credit cards have big effect on credit scores

Most Illinois consumers may believe that if they are paying on the "important" debts such as car loans, mortgages and student loans that their credit score will remain good. Unfortunately, not paying those credit card bills can actually hurt a credit score more than not paying the mortgage. A Chapter 7 bankruptcy on your credit report may even be more beneficial in the long run.

The reason for this is that most people have multiple credit cards and when times get tough, the first thing most people stop paying is their credit cards. From a practical standpoint, this makes sense since no one is going to get evicted for not paying their credit card bills. Credit card companies know this and are meticulous about reporting delinquencies to credit reporting agencies.

The amount of points that are taken off a consumer's credit score for each credit card delinquency is almost the same amount as being delinquent on mortgage payments. For instance, a consumer with three delinquent credit cards is having their credit score reduced by three companies at the same time. The consumer that is delinquent on a mortgage payment only takes one hit to their credit score at a time.

Filing for Chapter 7 bankruptcy protection can put a stop to credit card companies reporting to credit agencies. It is true that a bankruptcy may adversely affect your credit score in the short run, but again, the score only takes one hit due to a bankruptcy. This is one of the benefits of receiving a fresh start from receiving a discharge in a bankruptcy. An Illinois consumer who uses their fresh start to their advantage can rebuild their credit unfettered by their prior financial issues.

Source: Bloomberg Business Week News, "Credit-Card Debt Can Sink Your Credit Score," Elizabeth Dwoskin, Dec. 14, 2012

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