Keep An Eye on Your Bankruptcy Risk Score

Vince Laboon needed a loan to make home improvements.  Shortly after he applied for a $15,000 home equity line of credit, Laboon got a letter from the bank with his “bankruptcy score.”  The letter did not provide an explanation and Laboon was nervous.

Most people are familiar with credit scores, but may not know about bankruptcy risk scores, even though they have been around for the past 20 years.  The bankruptcy risk score is another means for lenders and credit card issuers to gauge an applicant’s credit-worthiness. The score is an attempt to determine how probable it is for a potential borrower to declare bankruptcy.

Devised by the Fair Isaac Corporation, the bankruptcy risk score uses information more specific than a credit risk score and more weight is placed on a consumer’s debt load. In credit scores, a higher number (up to 850) is better. The opposite is true for bankruptcy scores, where the lower number means you are less likely to file for bankruptcy. In fact, the score actually goes into negative numbers and can go as high as 2000.

Your score is based on many factors; some carry more weight than others do.   In descending order of importance, these are the factors considered:

• Amounts Owed – balances on open accounts, creditors and how much of your available credit you are tapping.
• Payment History –number of timely and late payments made, and whether you ever declared bankruptcy before.
• Length of Credit History – weight is given to accounts that have been open longer and have been used recently. Also, if you’ve applied for or opened new credit accounts. (Fewer looks better).
• Types of Credit – how varied is your mix of creditors from bank loans to lines of credit.

Experts say that many of the same things that improve your credit score also improve your bankruptcy risk score. That includes paying your bills on time and not over applying for credit. It is also a good idea to request your score periodically.

By Harold Shepley | Published June 21, 2013 | Posted in Bankruptcy, Credit | Tagged bankruptcy risk score, credit scores, Pennsylvania bankruptcy attorneys | Leave a comment