How Credit Scores Work

Credit scores are calculated to determine whether or not a person is approved for a home loan, car financing, and a wide variety of other purchases. This “magic number” also determines the interest rate the person will repay the loan. While this system can sometimes seem confusing or arbitrary, it actually works in a somewhat straightforward way.

A person’s credit score reflects the amount of debt he or she has compared to his or her income. A high ratio of debt to income will result in a lower credit score. A low ratio of debt to income will result in a higher credit score.

The credit score also reflects trends in the individual’s amount of debt. The score will rise, gradually, as the amount of debt is reduced. At the same time, it will fall if the amount of debt is increased.

Other factors also affect the credit score. It is also an indicator of a person’s reliability in paying bills. So things like missed electric bill payments, if chronic, as well as being evicted from a residence due to a failure to pay the rent will reflect badly on the credit score. Every on-time payment helps a credit score.

Of course, filing for bankruptcy will also affect a person’s credit score. In the short-term, filing for bankruptcy can have a negative effect on a person’s credit. However, as the person re-establishes his or her financial standing, his or her credit score can be repaired.

Contact an Austin Bankruptcy Lawyer

If you find yourself in a difficult financial situation and are contemplating bankruptcy, you need knowledgeable guidance to repair your credit rating. Contact the Austin bankruptcy lawyers of Slater, Kennon & Pugh Ltd.LLP at 512-338-1100.