Credit scores are so ubiquitous that people often don’t realize that it’s created by one private company to assist banks in approving or denying consumers’ access to credit. Some banks don’t even use them. The result is that people care very deeply about one score, and while they shouldn’t get too wrapped up in it, maintaining good credit is good for its own sake. What most people don’t know about is what banks call a “Bankruptcy Risk Score,” which serves the exact purpose its name suggests. Here are six facts you should know about bankruptcy risk scores.
(1) Although most consumers don’t know about Bankruptcy risk scores, banks have been using them for almost 20 years. Some credit card companies started crafting their own versions in the late 1990s by tracking people’s charges and spending habits.
(2) Creditors use bankruptcy risk scores as a secondary tool to assessing consumers’ credit, after their credit scores. Banks can get a better idea of how much risk is in their portfolios when they gauge how much capital they need to have on hand to back it up their debts for regulatory purposes.
(3) According to bankrate.com, [http://www.bankrate.com/finance/debt/do-you-know-your-bankruptcy-risk-score–1.aspx] “[T]he score typically surfaces when a consumer gives the bank permission to pull his credit report during the application process for a new loan, bank card or credit card, and during the periodic review of clients’ accounts to determine whether to increase a consumer’s credit limit.”
(4) Unlike credit scores, bankruptcy risk scores are meant for lenders only and aren’t available to consumers. Companies claim they’re afraid people will reverse-engineer the formulae behind the score, which is proprietary information.
(5) Credit scores and bankruptcy risk scores differ. Credit scores run from 350-850 points while bankruptcy risk scores actually start below zero and can go as high as 2,000 points. For credit scores, higher numbers are good while the opposite is true for bankruptcy risk scores.
(6) Nevertheless, bankruptcy risk scores contain some variables from credit scores: how much credit consumers are using, the frequency of their payments, and how many credit inquiries they’ve made recently.
(7) Likewise, timely payments, low balances, and no more accounts than necessary will keep one’s bankruptcy risk score low and their credit scores high.
Since it’s difficult to find out what one’s bankruptcy risk score is, there’s little point in worrying about it. If you are suffering credit difficulties, though, consulting with a bankruptcy attorney might be a good idea as bankruptcy can help you deal with your debt by reducing it or discharging it entirely.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 to set up your free consultation.