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Understanding credit utilization after Chapter 7 bankruptcy

Once a Washington consumer has taken charge of his or her financial future by seeking the elimination of unsecured debts, the next step is to begin rebuilding a solid credit score. Many people believe that completing a Chapter 7 bankruptcy will lead to a permanent black mark on their credit, and an inability to secure new lines of credit in the years to come. In reality, however, there are many ways to raise a credit score after a successful bankruptcy.

Understanding the role of credit utilization is an important part of that process. When looking to boost one's credit score, it is absolutely imperative to learn how those scores are calculated. While the exact formulas used by credit bureaus are not made known to the public, financial experts have determined the "weight" that various uses of credit are given when creating the scores. Credit utilization accounts for as much as 30 percent of the scoring rubric.

Credit utilization simply means the amount of available credit limit that is currently in use. For example, with a credit card that has a $2,000 limit, a balance of $500 would present a credit utilization of just 25 percent. In the eyes of credit bureaus, that is a very good number. It suggests that the borrower is making wise use of his or her available credit. On the other hand, a balance of $1,500 on that same account would be cause for concern, as it suggests that the borrower is reaching the boundaries of his or her credit limits.

Most experts advise maintaining a credit utilization of less than 25 percent, with 10 percent being ideal. There are two different ways to reach that goal: either by paying down the current balance and then charging less or by increasing the available credit limit. Either approach will yield the same results, because the credit bureaus do not care about the limits on credit cards; it is the utilization of that credit that counts. So, for Washington residents who are looking to raise their credit scores after a Chapter 7 bankruptcy, hitting that 25 percent credit utilization mark can make a world of difference.

Source:, "The No-Sweat Guide to Managing Your Credit", Joshua Johnstun, May 31, 2017

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