Types of Credit Scores: Bankruptcy & Risk Scores

Your personal credit report consists of two parts: your credit history and your credit score. Your credit score tells lenders how likely you are to pay them back if they extend you credit. In addition to your credit score, many lenders use another, hidden score --- your bankruptcy risk score. This score tells lenders how likely you are to declare bankruptcy, which might cause them to have to write you off as a bad debt.

Bankruptcy Risk Score

Your bankruptcy risk score differs from your credit score. Lenders get this additional score when they run your credit report. Creditors use this score to determine their risk of loss if they extend credit to you. This score is based on your number of late payments and how you use credit. Unlike standard credit scores, bankruptcy risk scores go from low to high; the higher your score, the higher your risk.

Standard Credit Score

Your bankruptcy risk score complements your standard credit score. Standard credit scores range from 300 to 850; the higher your score is, the better your credit and the more likely lenders are to extend you additional credit. Credit-reporting bureaus use information in your credit report to generate your credit score. The number of accounts you have open and the number of delinquent accounts or accounts in collections listed on your report heavily influence your credit score. Your credit score tells lenders how likely you are to pay back a given loan.

Private Score

Your basic credit score is public. However, as of 2011 your bankruptcy score is private, available only to lenders. The credit bureaus keep your bankruptcy risk score private because lenders don't want debtors to determine the precise formula they use and devise means of artificially lowering their bankruptcy risk score. However, debtors can lower their bankruptcy risk scores by taking the same actions that strengthen their credit score: paying bills on time, carrying low balances on credit cards and opening a minimal number of accounts.

Protecting Your Score

To protect your credit and bankruptcy risk scores, pay bills on time. If you cannot pay a bill because of financial hardship, contact your creditor as soon as possible to make alternate payment arrangements. Payment history accounts for about 35 percent of your credit score. You should also use credit only when you need it. Having too many open accounts or owing a lot of debt relative to your income level negatively affects your credit score.