You have watched your credit score closely to help raise it to aquality number. Excited, you go to apply for a mortgage only to findout that you don't qualify for the interest rate you believe your credit score should get you. Is it just a big mistake, or is there something else going on?
Most people are well aware that they have a credit score that helps to determine their credit rating. They also know this score can affecteverything from the amount of interest they pay on their credit cardsto what interest rate they qualify for when applying for a mortgage.
What most people don't realize, however, is that the credit bureausalso keep a second score on everyone: the bankruptcy risk score. Although this score has been in use for more than 20 years by the credit bureaus, youprobably have never heard of it until now.
Your credit score and bankruptcy risk score have a number ofsimilarities, but they are two distinct scores used by those seekinginformation on your creditworthiness. A credit score is basedprimarily on a person's credit history of obtaining and paying offdebt. The bankruptcy risk score, on the other hand, is a calculationof the likelihood that a person will file for bankruptcy in thefuture.
One of the major differences between the two scores is that anyone can request a credit score. Upon receiving it, you may dispute items on it to make it accurately reflect your credit history. This is not possible with the bankruptcy risk score. It's not available to individuals to review and is an exclusive report for lenders provided by the credit reporting agencies.
Another major difference between the two scores is the way that thescore numbers are read. Your credit score is a number between 350 and850, with a higher score indicating you have better credit. The bankruptcy score is read the opposite way, and its numberrange is much larger than the credit score's. Your bankruptcyscore is a number between -200 and 2018; the lower the score, theless likely you are to file for bankruptcy.
Besides these two basic differences, very little is known about thebankruptcy score. The credit bureaus have kept information about thisscore and exactly how it is calculated very confidential, claiming thatthe information is proprietary. Financial experts have speculated thatthe bankruptcy score incorporates your spending habits and how you useyour credit cards in addition to your credit score.
The last glimpse that the general public had of the bankruptcy riskscore was back in July 2005 when Experian released state-by-state data about the likelihood that consumers would file for bankruptcy in thenext year. In that study, Texas was at the top of the list; Nevada, New Mexico, Louisiana and Arizona rounded out the top five.
At that time, Experian made hints in the media that it might make the bankruptcy risk score available to its customers, but it didn't make any specific commitment as to when that might ultimately happen. Since then, there hasn't been any more public news on the bankruptcy risk score from Experian or either of the other two credit bureaus.
While there is currently nothing you can really do as an individual to access more information about your bankruptcy risk score, it isworthwhile to know that it does exist and may be a factor if your credit score doesn't get you the rates you believe you deserve.
A leading television commentator on personal finance, Jeff Strain will cover consumer issues with his "in your face" flair. His work has gained him national notoriety, as he has exposed the maneuvers companies use to take advantage of consumers.