Bankruptcy Scores: Another Measure of Credit-worthiness

According to experts, another way for lenders and credit-card issuers to estimate the ability of applicants to pay their debts is through their bankruptcy score. Your bankruptcy score determines your possibility, as a potential borrower, to file for a bankruptcy.

Sylvia Bronner, spokesperson of Citizens, said that a bankruptcy score is one of the many factors that are considered to assess the credit-worthiness of a borrower. Citizens not only use the credit scores of borrowers but also their bankruptcy scores to aid in the decision of what loan to give and to decide whether or not to issue credit cards.

Anthony Sprauve, spokesperson for Fair Isaac Corp. (Fico), said that a bankruptcy score is an instrument for lenders to distinguish borrowers who have a high probability of bankruptcy. Fico is the top third-party provider of credit, bankruptcy and other scoring systems.

In addition, Sprauve said that over 90 of the nation’s 100 biggest banks use the Fico scores.

Similar to a credit score, a bankruptcy score provides an assessment of a loan applicant’s payment and delinquency history, credit amounts, number and types of credit, and so on. However, a larger weight is given to the current debt load of the applicant.

Based on information from finance experts, bankruptcy scores have been present for more or less 20 years already, but it is usually hid from consumers’ view.

According to Scott Dressler, associate professor of economics at Villanova School of Business, depending on who produces the bankruptcy score, it may have a scale from 1 to 800 or from 50 to 950 or from 1 to 300. The higher the bankruptcy score, the more credit-worthy the applicant is.

Barry Robinson, executive vice president of consumer banking said that bankruptcy score are usually used by bigger lenders who make automated, less judgmental decisions and by credit card companies who handle a large scale of unsecured credit.

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