Do you have a question about consumer credit? You may find an immediate answer by using the search engine. If you can't find what you're looking for, please fill out the form, being as specific as possible.
Please note: The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team will include it in a future column.
The information contained in this column if for educational purposes only and is not legal advice. You should consult your own attorney or seek specific advice from a legal professional regarding your particular situation.
Please understand that Experian policies change over time. Column responses reflect Experian policy at the time of writing. While maintained for your information, archived responses may not reflect current Experian policy.
Topics addressed on November 24, 2010:
Bankruptcy has greatest impact on scores, collections a close second
What is worse, having several credit cards in collection or having a bankruptcy on your credit report?
Bankruptcy will likely be a little bit worse in terms of point impact, but in terms of your ability to qualify for credit, they are probably about the same. You likely won’t qualify for new credit if either is present in your credit history, or if you do qualify it likely will be at very unfavorable terms.
Declaring bankruptcy has the greatest single impact on credit scores. When you declare bankruptcy you take legal action so that you do not have to repay your debts, or only have to repay a portion of them. While you are no longer responsible for your debts, the fact remains that you did not pay them. A bankruptcy can remain on your credit report for 10 years, and can affect your ability to obtain credit during the entire time.
Collection accounts also have very serious negative implications for credit scores because they indicate you did not repay your debts as agreed. Usually, by the time you have accounts in collection, your credit scores are already pretty poor because of the missed payments which led up to the collection status.
Another reason bankruptcies tend to be more significant is that they typically include more than one debt, while each collection account only represents one debt. Multiple collection accounts will be more negative than one and will more closely compare to a bankruptcy.
You shouldn’t expect much, if any, immediate improvement, though. It takes time to get into serious debt trouble that appears as collection accounts or bankruptcy in your credit report. It will also take time to demonstrate that you have regained control of your finances and have established good credit management habits.
Thanks for asking.
- The "Ask Experian" team