Do you know your bankruptcy score?

Bankruptcy score? What the heck is that?

Yeah, that’s what I said. I only found out about it recently, when Trinity and I applied for a loan at our credit union to buy this here MacBook I’m typing on. (Yes, yes, I know we should have just saved up the money to buy it outright. But I can’t lug my iMac around to teach WordPress classes, and we still got a pretty good deal on the loan. Plus, when we pay it off early, there’s no penalty.)

Actually, the road to the MacBook Pro loan and the revelation of the bankruptcy score is a long one. Long story short — we tried to extend our credit line on one credit card, to adjust the ratio, but they denied us; we also tried to reopen a card we had paid off years ago, then stopped using, but that bank denied us. That was all even with Trinity’s excellent FICO score and my improving FICO score. (I was actually pleasantly surprised with how high my score was.) I was very pissed about all this, seeing as how both these banks are getting bailouts funded by taxpayer dollars, yet they are denying hard-working taxpayers with good credit like Trin and I (yet give sweetheart loans to these Democratic senators who have problems paying their taxes), but hey — you move on.

Anyway. As we wrapped up the loan process, the very nice lady at our credit union was apologetic that we didn’t get the best APR they could offer. “I’m sorry,” she said, “but we had to look at your second score too.” She was referring to the bankruptcy score.

According to the tiny bit of information available on Wikipedia, the bankruptcy risk score is Experian’s calculation on how likely you are to file bankruptcy. This score is calculated only by Experian and has been around for more than 20 years, but very few consumers know about it. And, when I did a casual Google search on it, I got just two articles — from 2004 and 2006.

The lady processing our loan told us that before the market tanked, they were only required to consider FICO scores when deciding who should get a loan and at what rate. But, they were apparently audited recently, and whoever audited them looked over all the accounts and told them to give greater weight to the bankruptcy score. In the past, a bankruptcy score, which is scored opposite of a FICO score — meaning, the lower your score, the better — could be under 900 (meaning, you have a 90% chance of filing for bankruptcy), but you would still get a good loan rate. Now, with tighter lending standards, our credit union could only give their platinum loans to borrowers with a bankruptcy score lower than 300. Ours was not more than 500, but it was definitely more than 300.

Supposedly, bankruptcy scores are much more specific. The score is calculated, according to Bankrate, using a consumer’s spending habits and the types of charges they make.

The big problem with the secretive bankruptcy score is just that — its practically a secret. Hardly anyone knew what I was talking about when I asked them if they knew what it was. And apparently, that’s how the banks like it:

So, why is it kept from the public?

“The argument is that people spent time and money researching the scoring model, and no one wants to disclose the model because they are giving away the value of the research that they’ve conducted,” says Gross.

4 thoughts on “Do you know your bankruptcy score?

  1. Mike

    Hello Darleene:

    Your story is becoming increasingly common in the marketplace.

    Last week CNBC Financial Analyst, Liz Weston wrote a great article with respect to the “secret scores” — Bankruptcy Scores & Transaction Scores.

    In 2003, we were also given the right to buy our credit scores from the 3 credit bureaus. But the law doesn’t specify we have to be given the same scores lenders use. It’s time to fix that and extend consumer protections to the Bankruptcy Scores scores that are being used to evaluate us.

    I contacted my congressmen and Senators regarding these secret scores demanding that the public be given the opportunity to acquire our Bankruptcy Scores.

    Here is the 2/26/2009 CNBC article involving the secret scores

    Thank you Darleene.

  2. William

    Darleene, thank you!

    Now Fair Isaac, the organization who started Credit Scores, introduced Bankruptcy Scores for lenders….I’m sure soon consumers will be able to obtain their Bankruptcy Scores…. Mike’s CNBC link above is excellent — it shows where we should demand Congress and the credit bureaus make available our Bankruptcy Scores! Bankruptcy Scores should not be hidden from us!

    Eveyone has a Bankruptcy Score, just like a credit score….however, we cannot obtain our more important Bankruptcy Score!

    Here is more intel regarding Bankruptcy Scores:

  3. darleene Post author

    Mike, I deleted a comment you made today because it was nearly identical to one William made. If you use one username, stick to it, thanks.

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