Vision Credit Education, Inc.

Your Nonprofit Credit Counseling Organization

Little Known Bankruptcy Score is Reason for Rate Increases

January 23rd, 2009 by Kenneth Long

Many credit card issuers have begun raising interest rates on cardholders that have never been late. In fact, many cardholders claim to have good credit, yet still are facing what they deem unwarranted increases in their interest rates. There is a relatively unknown reason for this high-risk classification however.

What is a Bankruptcy Score?

A bankruptcy risk score is not the same as your FICO score or credit score. Whereas your credit scores measure your risk of nonpayment, your bankruptcy risk score measures your likelihood to file for bankruptcy protection. It is based on how your recent credit history and transactions compare with those of other consumers when they filed for bankruptcy.

Many cardholders were blindsided by interest rate hikes. Chase for example gave many cardholders the option of either a rate hike or a 150% increase in their minimum payment. Other card issuers have raised interest rates by 3 or 4 points for many of their cardholders.

The reason that card issuers are raising rates, fees and even minimum payments is that they are trying to offset losses associated with higher default rates and losses from their other lines of business, such as mortgage units and brokerages. Some cardholders are not amused however.

Consumers may rightfully argue that their credit scores are still reasonably good, and therefore they should be protected from unprovoked rate increases. What they do not often know is that they likely have a bankruptcy risk score that may indicate that they are a higher risk client.

Credit card issuers reserve the right for adjustments to the cardholder agreement terms at “any time for any reason.” While these rights may be restricted beginning in July 2010, they do have the right to make changes without a cardholder’s consent.

If you believe that you have a good credit score and have experienced a rate increase or some other unwanted change, then there is a high likelihood that your bankruptcy risk score is higher than other cardholders with a similar credit score. While these scores have been blocked from consumer access for decades, they may be offered by Experian in the future.

This entry was posted on Friday, January 23rd, 2009 at 1:38 pm and is filed under Bankruptcy, Credit Cards, Credit Cards: Chase, Credit Scores. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 responses about “Little Known Bankruptcy Score is Reason for Rate Increases”

  1. Ed said:

    hahaha. I have a perfect 850 credit score and have never in 57 years missed a payment. Yet my bankruptcy score recently showed 475 out of 600. It didn’t deny me any credit but it is still a very bogus number. Who makes up this crap? people who are trying to keep a job?

  2. Dave said:

    I agree with Ed. I just applied for a loan and found out my credit score is 850 but my bankruptcy score is a 496. How can the two scores conflict by that much? This was the first time I have ever heard of a banruptcy score eventhough they have apparently been in use for many years. I got the loan but I think the score is ridiculous.

Leave a Reply