People considering filing bankruptcy in New York are well aware of the consequences of a bad credit score. They can be denied credit; potential employers might not hire them; and landlords might decline to rent to them. Consequently there’s plenty of advice about how to maintain and buoy a credit score. What isn’t out there, however, is information about another score that banks track and don’t let consumers know about: bankruptcy risk scores, which help lenders determine the likelihood that debtors will file bankruptcy. For obvious reasons they don’t disclose this information to the public.
In fact, banks have been developing bankruptcy risk scores for around two decades by gathering information on consumers’ borrowing and spending habits after they’ve filed bankruptcy. There’s nothing morally wrong with creating the score much less keeping it private. Banks usually only use the bankruptcy risk score as a secondary tool for assessing people’s creditworthiness, after their credit scores. The score appears most often when consumers authorize banks to obtain their credit reports when applying for credit or increasing credit limits.
Bankruptcy risk scores differ from credit scores in some important ways. One, a FICO credit score ranges from 350 to 850 points while a bankruptcy risk score starts negative and can reach as high as 2,000. Two, a lower bankruptcy risk score is better than a higher one, the opposite of credit scores.
On the other hand, both scores share some variables, such as how much credit consumers are using, payment frequency, and the number of credit inquiries they’ve made recently. On-time payments, low balances, and only a few credit accounts will keep a credit score high and a bankruptcy risk score low.
In the end, it’s people’s circumstances, not their scores, that determine if they file bankruptcy: people who have suffered a financial setback like losing a job and people who find themselves living in an underwater home. Regardless of your situation, if you are experiencing financial difficulties, then you should consult with an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy adversary proceedings Bruce Weiner for a free initial consultation.