Credit Score

Credit Score

Credit Scores Drop at Rates Not Seen Since the Great Recession

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As Americans struggle to keep up with the cost of living and the return of student debt payments, their credit scores are taking a hit. The national average FICO score dropped by two points this year, the highest since 2009, according to recent data.  These numbers are down for the second year in a row.  FICO also found that delinquency rates on auto loans, credit cards and personal loans are at or near their highest levels since 2009.

Younger Americans are facing even more financial pressure with high student loan debt and low entry-level hiring. Gen Z borrowers experienced an average credit score drop of three points — the biggest decline of any age group since 2020 during the pandemic, according to FICO.

FICO found that 14% of Gen Zers have had a large credit score decline of 50 points or more in the past year — more than any other year and double the decline of 2021.

The US Department of Education’s COVID-19 relief for student loans has ended. The 0% interest rate ended Sept. 1, 2023, and payments restarted in October 2023. The Department of Education restarted collecting federal student loans in default in May. Student loan delinquencies were not reported on credit files until February.

Between February and April, 6.1 million consumers had a student loan delinquency added to their credit file, according to FICO. That means the student loan delinquency rate has climbed to a record high of 29% among the 21 million borrowers with a student debt payment due.

The impact of these late student debt payments and the fact that Gen Z doesn’t have a long track record of making credit payments, which builds their credit scores. This makes their credit scores vulnerable to more volatility, both up and down.

FICO found that 64% of Gen Z and 61% of Millennials with student loans rely on credit cards, buy-now-pay-later loans or personal loans to bridge financial gaps.

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If you have any questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover.

Credit Card Debt, Credit Score

What To Know Before Closing a Credit Card with a Balance

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While you can close a credit card with a balance, there are a few things you should keep in mind. At $17.69 trillion in the first quarter of 2024, United States consumer credit card debt is at its highest level ever recorded by the Federal Reserve Bank of New York. Per household, that totals to about $10,848.

It can be tempting to want to close these cards out, and for good reason. But doing so may not lead to what you expect- especially if you have had the card for a long time.  By closing the credit card, you are skewing your credit utilization ratio.

Credit history encompasses 15% of your credit score. Closing a credit card means you lose that credit limit. In addition, you are at risk of accruing additional fees if the minimum payment you can afford is smaller than the interest added each month.

Another common mistake credit card users make when closing out their account is not verifying whether their account is closed. Without written confirmation, the cardholder may continue accumulating fees and penalties, unknowingly.

Neglecting any residual balance repayment after the card is closed can lead to an increase in debt. Paying close attention to those payments is essential, even if you have decided to close the account.

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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Bankruptcy Law, Credit, Credit Score

The Impact Bankruptcy Has On Applying for Loans and Credit Cards

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While not all bankruptcies cause a huge drop in a person’s credit score, it is possible a person’s score could rise after bankruptcy.

A consumer’s FICO score is one of the biggest determining factors in whether a person will receive approval for credit or financing. The FICO score will also help determine the interest rate a person receives on a credit card. Some lenders are willing to accept credit applications even with lower scores. However, if this happens, it is unlikely that the terms of the credit application will be favorable to the consumer.

The bankruptcy filing may or may not have a significant impact on the consumer’s credit score, depending on what the score was before the filing. The consumer’s payment history makes up approximately 35% of the person’s credit score. If the person had a poor payment history to begin with, the bankruptcy filing will not have as much of a noticeable impact on the score. If the person had an excellent credit score previously, the effect the bankruptcy will have on the credit score will be more significant.

Consumer Bankruptcy, Credit, Credit Score

How to Repair Credit History After Filing for Bankruptcy

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Once a consumer has filed for bankruptcy, he or she will almost certainly notice a drop in their credit score. This drop is to be expected, and while it does temporarily affect a person’s credit, it is by no means permanent. In fact, with good financial habits a consumer can rebuild his or her credit to better than it was before filing for bankruptcy.

Following the closure of the bankruptcy case, certain steps can be taken to bring that credit score back to where it once was or even higher.

Credit Card Debt, Credit Score

How Credit Card Debt Impacts Your Credit Score

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Most consumers utilize a credit card at some point in their lives, and many of them carry credit card debt from month-to-month. While using credit cards responsibly can help increase a person’s credit score, having too much credit card debt can cause significant harm to that score.

The amount of debt you owe on your credit card is one of the biggest factors affecting your credit score. That’s why it is never a good idea to max out your credit card. And when your credit score goes down, you could end up having to pay higher interest rates on loans or any other credit you apply for. A low credit score can impact your applications for apartment rentals, cell phone plans, and more. Research by the Consumer Financial Protection Bureau has indicated that high income earners are as prone to financial stress because of debt as low-income earners.

Consumer Debt, Credit Score

Millions of Debt Collections Disappear from American Consumers’ Credit Reports

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Millions of debt collections disappeared from American consumers’ credit reports during the COVID-19 pandemic, according to reports from the Consumer Financial Protection Bureau (CFPB). Even though a large number of collections cases dropped off credit reports, overdue medical debt still remains a major consumer problem.

According to the CFPB, the total number of debt collection cases on consumer credit reports went from 261 million in 2018 to 175 million in 2022, dropping 33 percent (33%). Additionally, the number of consumers who had a debt collection on their credit report decreased by 20 percent (20%) between 2018 and 2022.

Credit, Credit Score, Financial Advice

Why Your Debt-to-Income Ratio Is So Important

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A person’s credit score is not the only figure lenders look to when determining whether to approve an application for financing. Many times, lenders will also look to the applicant’s debt-to-income ratio (DTI) when making a determination to approve financing.  

A consumer’s debt-to-income ratio looks at whether the individual is bringing in enough income to meet his or her monthly bills. The actual DTI figure is computed by taking the consumer’s gross monthly income and dividing it by his or her monthly debt payments. The result is the person’s DTI.  

Bankruptcy Law, Credit Score

When Can I Apply for a Credit Card after Bankruptcy?

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The type of bankruptcy can affect how soon someone can apply for a credit card after bankruptcy. A Chapter 7 bankruptcy case allows the consumer’s debts to be discharged fairly quickly, within a few months, after non-exempt assets are liquidated and used to pay off the filer’s debts.

A Chapter 13 bankruptcy case takes longer than a Chapter 7 case since it involves a three-to-five-year long repayment plan where the consumer works with the bankruptcy trustee on paying down qualifying debts while discharging what is left at the end of the repayment period.

Bankruptcy Law, Credit Score

Tips for Rebuilding Credit After Bankruptcy

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Sometimes people hold off filing for bankruptcy for fear of what it will do to their credit and financial future. While filing for bankruptcy will impact a person’s credit score, this damage is not irreparable. In fact, with good financial habits a consumer can rebuild his or her credit to better than it was before filing for bankruptcy. 

After the consumer’s debts are discharged at the end of a bankruptcy case, it is recommended that the consumer monitor his or her credit report to ensure that any outstanding or past-due balances are reported as zero if they have been successfully discharged. If any discrepancies are found, these errors should be reported right away to the credit bureaus via a formal dispute.