You know lenders keep close tabs on your creditworthiness, which is why you want to keep your credit score as high as possible. You might not realize lenders also keep track of your bankruptcy score -- with a higher score indicating you're more likely to file for bankruptcy. FICO -- the acronym for the Fair Isaac Corp., which determines credit scores -- provides financial institutions with bankruptcy scores. Sophisticated mathematical formulations determine actual scoring.
Bankruptcy scores assess your risk of filing for bankruptcy, and are based on some of the same principles as credit scores, although in inverse proportion. Late or missed payments, amount of income, available credit, length of credit history and current debts are just some of the contributing factors to the bankruptcy risk score. Ideally, you want a negative score. That indicates the odds of your filing for bankruptcy are virtually nil.
Lowering Your Bankruptcy Score
Your lender probably won't give you information regarding your bankruptcy score unless you've been turned down for a mortgage or other loan. Keep your bankruptcy score as low as possible not only by doing the obvious, such as promptly paying bills, but also by not opening credit lines you don't need. Avoid acquiring a lot of debt quickly, even if you think you can afford to pay it off. That's a red flag to lenders, because people often run up a lot of debt before filing for bankruptcy.