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The Confidential Bankruptcy Credit Score

You may not know it, but banks, credit card companies, and credit bureaus have been keeping tabs on the likelihood that you will commit, er... file for bankruptcy. And, they have been doing this for about the last 20 years-- but have you ever heard about your bankruptcy score? This score has been kept a secret from consumers, but it is usually reported to your bank or lending institution along with your other information when you apply for credit.

Although it has typically been used as a secondary indicator of your credit worthiness, it has become more important in recent years. The existence of a bankruptcy score has not been a secret. You just cannot find out what it is or how it is derived. In fact, if you are denied credit because of your bankruptcy score, the lender is required to tell you that that is the reason… but not what the score itself actually is.

So, how is anyone supposed to know how to correct a deficient bankruptcy score? One thing that is known about how the score is calculated is that your spending habits are used in combination with the same indicators that make up your credit score. It is very likely that the same things you do to improve your credit score will also improve your bankruptcy score.

In short, this means not applying for too much credit, and making payments on time. But it is still like a shot in the dark to try to figure out where you stand. Even though the Fair Credit Reporting Act (FCRA) entitles you to a free credit report every year, it does not guarantee you access to your credit scores-- and certainly not to your bankruptcy score. So much for transparency in the financial industry.

There may be hope, however. Rumors have it that Experian may make a version of the bankruptcy score available to consumers, so be on the lookout for this announcement. However, even an annual snapshot of your bankruptcy score may be of limited use. After all, the scoring system that Experian has developed with Visa uses daily tracking of your likelihood for bankruptcy.

Given the recent trouble between Experian and Fair Isaac Corporation regarding availability of your FICO score, there is cause for consumers to call for more transparency from credit reporting agencies. Perhaps the FCRA should be expanded to include all the same information that lenders and other business customers see, including your credit scores and your secret bankruptcy score.