Tuesday, January 20, 2009

Are You A Bankruptcy Risk? Enigmatic Score May Tell Lenders


We're all familiar with credit scores. FICO scores, for example, range from 300-850. The score is used to gauge the risk that a particular applicant represents. But are you familiar with the bankruptcy score? Creditcards.com does an excellent job of explaining what this score is and why it matters.

From the story:

Although they attempt to predict different outcomes, credit scores and bankruptcy scores have much in common. "Fair Isaac's bankruptcy scoring models use consumer credit reports as input, just as the FICO score does," says Fair Isaac's Watts. Other bankruptcy scores also incorporate information from the credit bureaus. BankruptcyPredict, which became commercially available as a subscription service in early 2008, uses a "combination of credit reporting agency attributes and trending data, as well as transactional behaviors such as credit card transaction amounts, merchant category codes and cash advances," according to Experian's Web site.

Read the rest of the story here (link).

13 comments:

  1. I got a Chase Freedom 5 months ago and now I want a Discover More but I'm afraid that my other card companies, even though I pay in full every month, will think of the situation. I don't need the credit I just want the cashback. A catch-22 if you ask me. What do you think of my situation creditmattersblog owner?

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  2. Get a card from Penfed, they have one of the best cashback deals all around. Other then that, your comment is somewhat unclear, certaintly as to how it relates to this particular blog.

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  3. Anon, shoot me an email. Your question would likely get us a bit off topic here.

    Plastic101@gmail.com.

    But Shem does make a good suggestion. Penfed has a nice cash rewards card.

    Shoot me an email.

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  4. It does apply to this blog

    More cards applied for = greater risk of bankruptcy on the minds of credit card companies.

    I want to get more cards for different rewards, but I dont want it to affect my relationships with my current lenders.

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  5. Anon, fair enough. I think it's tangential but I get to make the rules around here.

    So, let's tackle the question.

    I need more information. How many cards to you have? How old is your oldest card? What kind of utilization do you have? When did you open your last card? How many accounts opened during the past 12 months?

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  6. How many inquiries on each of your credit reports?

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  7. And here is a link to a story I wrote about Penfed's cash rewards card.

    http://www.creditmattersblog.com/2008/07/looking-to-combat-high-gas-prices.html

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  8. I have 4 CCs total.
    Oldest CC is 8 years and change.
    Utilization <1% on all cards. I have VERY high limits.
    Opened last card 5 months ago.
    1 account opened in the last 12 months.
    Inquires...transunion... 3(all over 1 year)
    Equifax....0 Experian....1 (5 months ago).

    Thanks for the help.

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  9. I don't know your scores, but I'd be shocked if they were less than 750. Anyhow, you should not have a problem getting a new card.

    The toughest decision will be choosing which card you want. I don't think that you'll be seen as a risk just because you got a card 5 months ago.

    I'd take a look at that Penfed cash rewards card. 5% cash back on gas, 2% cash back on groceries, and 1.25% cash back on everything else. Cash is rebated monthly and used as an offset for your current balance.

    I'd imagine you won't have a tough time with the Discover card, either, but Discover is not known for granting high limits. They're conservative.

    Penfed, on the other hand, is well known for being generous.

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  10. Trying to wrap my head around this - but it doesn't sound great for those of us who pay everything on CCs and primarily PIF each month.

    They are looking at transactions/merchants/etc. I'm sure other people out there use CCs for everything just to get rewards. I am worried it will give a bad 'bankruptcy' score. Add this to recently getting a new card or two with better rewards and it's concerning.

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  11. Cats, I take it that you are worried about this particular passage in the story:

    "Other bankruptcy scores also incorporate information from the credit bureaus. BankruptcyPredict, which became commercially available as a subscription service in early 2008, uses a "combination of credit reporting agency attributes and trending data, as well as transactional behaviors such as credit card transaction amounts, merchant category codes and cash advances," according to Experian's Web site."

    Here's my opinion. Just realize that BK scores are just one part of the soup. Because these scores aren't well understood, it's difficult to know what transactions and categories would flag you negatively.

    Also, and I think this is important: look at that chart in the story (high up in the story). It shows what a BK customer will look like. Note the high utilization. Most PIFers will never worry about that kind of utilization.

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  12. Also from the story:

    "The overlaps mean certain behaviors -- such as keeping balances low, making payments on time and avoiding too many applications for new credit -- should benefit both types of scores. "When it comes to improving bankruptcy scores or any other type of credit score, consumers should follow the same golden rules ... since almost all credit scores, in some fashion, measure how consumers pay their bills, the length of time they have managed credit well and the types of credit they are managing," Experian's Henson says."

    This is where those in pay in full shouldn't worry too much.

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  13. That does help. I'm done getting new rewards cards for 09, I think. :D

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