Bankruptcy Scores and Predicting Bankruptcy

As the economy continues to unravel, consumer bankruptcies are sure to rise, and lenders are certainly taking note, cutting credit lines and denying more new credit applications.

But how does one go from being a general credit risk to an outright bankruptcy candidate?

Well, it turns out Fair Isaac, the brains behind the Fico Score, also have “Bankruptcy Scores” dedicated to identifying accounts most likely to result in bankruptcy losses.

Their proprietary system, which can be used alongside Fico, detects future bankruptcies, including so-called “surprise bankruptcies,” helping lenders minimize related losses and hold onto more “good” revenue.

Of course, the bankruptcy scores aren’t available to the general public, and much like the Fico score, how they’re made up is kept well under wraps.

But one company, AnalyticsIQ, has demystified some of process in a white paper you can read here.

Comparing a bad borrower to a bankrupt borrower, the latter seems to be much more credit active, both in the number of tradelines and amount of revolving credit utilization.

A bankrupt borrower also typically has more credit inquiries and new lines of credit, along with older credit, including those maxed out in the past and new ones rapidly heading down that path.

Some speculate that the scores also look at the behavior of the consumer, such as where they shop or if they rely on risky cash advances.

What seems to separate the bankrupt borrower from the simply bad borrower, however, is the rush to get new credit after expending all previous sources of credit, signifying a last ditch effort before a subsequent bankruptcy filing.

Luckily, maintaining a solid bankruptcy score is much the same as keeping your credit score healthy.

The same golden rules apply: pay bills on time, keep balances low, and limit the amount of new credit you apply for.

Related Topics:

1. Is Bankruptcy Worse Than Foreclosure for Your Credit Score?
2. Seasoned Trade Lines
3. Cut Credit Lines Don’t Really Lower Credit Scores
4. Always Keep At Least 3 Lines of Credit Open and Active
5. More than a Quarter of Americans Have Credit Scores Below 600