Improving your bankruptcy
By Louise Bolger
SUN STAFF WRITER
It couldnt have been too long after
man discovered fire that he created the concept of credit.
Think about it. The more successful hunters and gatherers
would give some of their bounty to the less successful as
insurance against the day when they couldnt procure
their own food. If the loan wasnt paid off, with interest,
good-bye future credit.
Modern credit policies arent too different. Financial
institutions have a variety of methods to determine if you
are a good credit risk, and one of them that has been around
for a long time is just starting to become known to the average
You probably already know what your credit score is, and if
you dont, you should because this is the number that
helps you get credit and good interest rates on mortgages,
car loans and credit cards. Well, theres another scoring
tool called the bankruptcy risk score.
This score is used secondarily to the credit score when financial
institutions analyze a consumers credit history. It
is actually more of a debt analysis than a credit rating or
score used to determine the risk of bankruptcy. It is arrived
at by use of advanced mathematics and data analysis partly
based on consumer spending and types of charges, as well as
information directly from your credit report.
Since banks and lending institutions are required by law to
keep a reserve based on potential bad debt losses, the bankruptcy
risk score was developed to help banks assess true risk within
Unlike credit scores where the higher number the better, bankruptcy
risk scores start in the negative numbers and can increase
as high as 2,000. So far bankruptcy risk scores have been
difficult to get, but they may be made available in the future
through some of the traditional credit report agencies.
In the meantime, just like keeping a clean and healthy credit
rating and high credit score, working on a good bankruptcy
risk score is important. In fact, many of the same ways of
improving credit scores will also improve bankruptcy scores:
Pay all your bills on time. Even late payments count against
you. Try using automated payments if youre the forgetful
type. Keep debt balances low and stay away from reaching the
top of your credit card limit. Open accounts only when necessary,
and dont apply for unnecessary credit. Say no thank
you to the nice lady offering a new department store credit
card when youre buying lipstick.
Statically, someone who has applied for credit six or more
times in a 12-month period, is more likely to have problems
repaying creditors, and is eight times more likely to file
for bankruptcy. If, however, you are shopping for a home loan
or car loan and apply to multiple lenders, the bankruptcy
risk score counts it as just one inquiry. And, finally, if
you have recently paid off a credit card, wait before closing
the account. Long credit histories help lenders decide whether
they want to do business with you.
Theres no question that todays world revolves
around the use of credit, therefore, improving your bankruptcy
risk score could have significant financial benefits.
Even though, my little scenario about early man may be a bit
of a stretch, its still survival of the fittest when
it comes to finance, a good reason to keep all your credit