Most of us are aware of the credit score - a numerical quantitywidely used to assess your credit worthiness.
But there's another scoring tool thatcan debar you from getting credit.
It's the Bankruptcy Risk Score - asupplementary score that most creditors and lenders scrutinize prior tooffering credit.
Personal bankruptcy seems to be a major consumer credit problemfor lenders and credit providers.
Since creditors cannot recover losses due tobankruptcy without litigation, so consumers filing bankruptcy are more costly forthem.
The year 2005 has experienced record number of bankruptcy filings - atleast 31.
6% higher than 2004 prior to the new law coming into effect.
But the new law has hardly helped debtors.
Reports suggest thatonly 3.
3% of the debtors could get rid off debts using debt management plans.
The mandatory credit counseling sessions under the new law proved useful toonly a maximum of 5% and minimum of 1%-2% of the filers.
Here lies the need forBankruptcy Risk Score to make debtors more aware of how much credit they can deal with.
On the other hand, creditors and lenders get the extra edge overtraditional scores, as they are better informed of the consumers' creditstatus.
This helps them in making credit decisions accordingly.
Creditors assess the score when you apply for a mortgage, acredit card or any other bank card.
Before extending credit, banks may alsoreview the score while checking your accounts.
Banks need to maintain a standardcapital-to-risk ratio, and Bankruptcy score enables them to evaluate the riskwithin their portfolio.
A combination of your credit score and spending habits(how you use credit card, shopping card, etc) helps in the evaluation.
You may be looking for a single loan, either a mortgage or anauto loan.
But multiple lenders may ask you for the credit report.
In order tomake up for this, while determining the Bankruptcy score, multiple auto ormortgage inquiries are taken as a single inquiry.
Over applying for credit alsomatters a lot as far as this score is concerned.
Bankruptcy Risk Score Vs FICOScore Unlike the FICO credit score that gives a general overview ofyour credit history, the Bankruptcy Risk Score highlights your chances ofgetting bankrupt.
The score varies from -200 to 2018, with the most rangingbetween 0 - 1000.
Higher score indicates greater risk of filing bankruptcy.
This is in contrast to the FICO scoring model where a low score implies thereis higher risk in offering credit.
With Bankruptcy Risk Scores,creditors can:

• Supervise existing portfolios
• Decide upon the initial credit limit
• Raise or lower the existing credit limits.
  
• Determine the collateral requirements formortgages and other secured loans.
  
• Identify lower and higher risk debtors and thenoffer loan programs as per their payment ability.
  

Bankruptcy scores are not available to consumers, only thecreditors are informed about it by credit reporting agencies.
However, thecredit reporting agency, Experian has decided to provide consumers with suchscores, knowing which consumers can anticipate debt problems and thus be morecautious.
Experian has also compiled the following list of states with higherbankruptcy scores.
Texas Nevada New Mexico Louisiana Arizona With a high bankruptcy score, you can hardly get credit at someof the best rates prevailing in the market.
Just like you go for a creditrepair in order to raise your FICO score, you should look forward to different means of improving the bankruptcy score.
Here are some easy-to-followsteps to guide you in the process.
Pay your bills intime: Late payments or missed payments create a negative impact on thebankruptcy risk score.
Other factors affecting the score are accounts beingreferred to collection agencies, repossessions or an already declaredbankruptcy.
You can avoid such situations by using automated payment systemwhich helps you to pay in time.
You may also check out with the credit reportingagencies for any error or dispute in your credit report.
Maintain a low debtbalance: Keeping a low debt balance, that is, a low balance-to-limit ratiois necessary.
Using up a credit card beyond the limit affects your score.
Butyou can have multiple cards with minimum balance on each.
And, in case you haveindeed crossed your credit limit, you may consult the creditor for analternative repayment plan.
Open accounts only whenrequired: It's better not to open several accounts within a very shortperiod of time.
This can lower both your credit score as well as Bankruptcyscore.
Credit report statistics show that an individual applying for new credit6 times in the past 1 year is 8 times more likely to file bankruptcy than othersare.
Bankruptcy score depicts whether you will be bankrupt, delinquentor go through a charge off in future.
With this score, analysis of your credithistory becomes more precise with creditors being well-informed of your creditstatus.
While creditors and lenders can judge your credit worthiness better,you too can decide as to whether you can afford to manage debts, provided youknow your score.