Tag Archives: credit issues

3 things you probably didn’t know about your credit score

A photo illustration shows charts for credit scores on a computer in North Vancouver, B.C., Wednesday, June, 15, 2016.

A photo illustration shows charts for credit scores on a computer in North Vancouver, B.C., Wednesday, June, 15, 2016.

Jonathan Hayward/The Canadian Press

Here’s what most Canadians likely know about their credit score: It’s a number somewhere on a scale from 300 to 900 — and the higher that number, the easier and cheaper it generally is to get credit.

If you want to take out a mortgage or auto loan, a good credit score improves your chances of being approved and getting a lower interest rate. A high score may also give you access to instant-approval credit cards and loans.

 

But here’s something you probably didn’t know:

No one really knows exactly how credit scores work

For obvious reasons, Canada’s two credit-reporting agencies, Equifax and TransUnion, do not reveal the exact formula through which they come up with credit scores. If they did, it would become easy for anyone to game the system.

READ MORE: Can’t afford to pay your tax bill? Here’s what you can do

The implication here is that most advice you get about how to improve, build or repair your credit score is really an educated guess. Based on anecdotal evidence and what they see dealing with clients, financial advisers have a pretty good idea of how different types of behaviour affect credit scores. But they can’t tell exactly how much of a difference each one really makes.

That’s why Douglas Hoyes, a licensed insolvency trustee at Kitchener, Ont.-based Hoyes, Michalos and Associates, is skeptical of strategies that entail taking out costly loans just so you can supposedly build or repair your credit score faster.

WATCH BELOW: Huge price to pay for payday loans

Borrowing at, say, 30 per cent interest is guaranteed to cost you a pretty penny. The gain, on the other hand, it quite uncertain. Taking out a loan will definitely improve you score if you make your payments on time, but how much of a difference will it really make? No one can say for sure.

Given the uncertainty, Hoyes advises borrowing through the lowest-cost debt you can access and trust that your credit score will gradually improve if you keep on top of your finances.

WATCH BELOW: Dollars and sense: Credit score basics

For those with no credit history or a poor credit score, a good first step is getting a secured credit card such as the Home Trust Visa, according to Hoyes. “Secured” credit means the lender will ask you to put down, say, a $1,000 security deposit for a $1,000 credit card limit. The point of such a credit card isn’t to borrow money to finance expenses for which you don’t have cash at hand but to show that you can make disciplined debt repayments.

Secured credit cards normally come with steep interest rates. The no-fee version of the Home Trust Visa charges interest of 19.99 per cent, but borrowers need not worry about it if they pay off their balance in full and on time, Hoyes noted.

 

Credit scores are designed with banks, not you, in mind

You might think that diligently paying off your credit card bills as soon as they come would get you the best possible score. You might be wrong.

Some financial advisers and debt management experts believe carrying a small balance of up to 30 per cent of your available credit on your card might actually boost your score more than having a balance of zero.

That’s because “credit scores are meant for the benefit of the banks, not you,” said Hoyes.

Banks are happy with customers who reliably repay their debt. But they also make money off charging interest. So they may be happiest with customers who will eventually repay their debt but keep carrying a balance, on which they’ll have to pay interest, explained Hoyes.

He advises doing what’s best for your pocketbook and skipping on financial behaviour that will ultimately cost you more — even if it means your credit score will be a bit lower.

 

Credit scores don’t matter as much as you think

A third thing to keep in mind about credit scores is that they aren’t necessarily the only metric a bank will use to assess your creditworthiness. “Banks may have their own formulas, too, which are different from whatever Equifax and TransUnion are using,” noted Hoyes.

Finally, he added, a bad credit score won’t shut you out of borrowing forever. Even bankruptcy is something you can recover from relatively quickly, if you have a good, stable job and show financial discipline, said Hoyes.

“I have plenty of clients who bought houses two years after being discharged from bankruptcy,” he told Global News.

READ MORE: Why it’s important to check your credit history

Source: Global TV –

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Tips to repairing bruised credit

Tips to repairing bruised creditThe importance of a high credit score is, unfortunately, lost on many borrowers, but with a little discipline and dedication, they can get back on track.

Everything from paying extra fees to larger down payments are some of the consequences borrowers with bruised credit contend with, and according to CanWise Financial’s President James Laird, it’s imperative that clients are taught the finer points of responsible payment.

“If it’s not a bankruptcy sheet and not a consumer proposal, we most commonly see borrowers who have balances over their limit, so while it’s somewhat counterintuitive, get a higher limit because it helps your credit score if your spending habits don’t change,” he said. “Someone who spends the exact same amount of money—let’s say $2,200 with a $10,000 limit—you have an excellent score, but if your limit is $2,000 your credit is being severely damaged.”

Speaking of counterintuitive, Laird advises clients trying to rehabilitate their credit not to make payments before the end of the month. If it’s paid too quickly, it’s like the money was never owed in the first place.

credit

“Sometimes we see the most organized people pay off their credit card right before the month turns over, and in that case, credit companies will stop reporting to the bureau,” continued Laird. “If you pay it off the same month you spend it, it’s like you’re not paying any money. Let the month turn over and make your payment during the interest-free period—like within 10 days or whatever you have—because you have to show that you owe a bit and that you’re diligent at making payments. If you pay it off before the end of the month, it’s like you never owed the money.”

In the case of bankrupts, their credit facilities will have been closed down, and Laird recommends getting two new ones that report to the credit bureau so that rehabilitation can begin.

creditscore

“It’s important to get new credit facilities up and going as soon as possible after you’ve had an issue,” said Laird. “We recommend that if someone has gone through bankruptcy or a consumer proposal, they can still get a prepaid VISA, and most of those report to the bureau, and that will start repairing your credit score.”

Daniel Johanis, a Rock Capital Investments broker, always reminds clients with bruised credit that their utilization must be 50-70%.

“If it hits 90% or higher, it’s showing the bank that your ability to repay outstanding debt is challenged because you’re at the point where you’re a higher risk for missing a payment or not meeting your monthly debt obligation.”

For borrowers well on their way to repairing bruised credit but who may have been hit with by an unforeseen, and expensive, circumstance, Johanis recommends making a call to the bank or credit holder.

“Making a simple call and saying ‘I’m behind and I need to get caught up, so can we figure out a repayment plan?’ is surprisingly effective,” he said. “They’ll often work with you because they don’t want you to default. It’s always worth giving the credit holder a call to see if they can do anything. It buys you time.”

Source: MortgageBrokerNews.ca – by Neil Sharma 09 Nov 2018

 

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Second mortgages in Canada: 6 reasons you may need one

We’re living in a world where certain financial obligations must be settled on time. It could be college tuition, renovation costs, emergency repair bills, debt consolidation or even paying for a wedding. Whatever it is, it can’t wait, and it needs to be resolved as soon as possible.

As the saying goes, time waits for no one. And, neither do the bills lurking around the corner.

So what are your options? You may think of getting another credit card, but you’re past the limit or have a poor credit score. Traditional lenders have turned you down too, and you couldn’t be more disappointed.

However, if you’re a Canadian currently paying for a primary mortgage, you could have an ace in the hole to sort out your financial hurdles. This is where a second mortgage comes in.

What are second mortgages?

A second mortgage is a secondary loan held on top of your current mortgage. A different mortgage lender will typically provide this product. It’s important to note that second mortgages have their own rates and terms, and is paid independently of your primary mortgage.

In layman’s terms, second mortgages are loans that are secured by your home equity. Usually, you can acquire up to 80 percent of your home equity through a second mortgage and if you’re in a major city, up to a maximum of 85 percent.

In contrast to the primary mortgage, a second mortgage has its own terms and conditions. Hence, the second mortgage is paid separately with different rates from the first mortgage. Nonetheless, in case of a default, the second mortgage will only be repaid after the primary mortgage has been sorted out.

So what are some of the reasons you may need a second mortgage?

1. You want to pay off high-interest consumer debt

A recent report released by Statistics Canada shows that for every dollar of disposable income, Canadians owe $1.68 in credit market debt. In fact, Statistics Canada estimates that the accumulated consumer credit is $627.5 billion; not including mortgages. If you’re an average working Canadian, it is very likely that you have consumer debt.

Keep in mind that the average credit card interest rate in Canada is 19.99 percent. Of course, the longer you delay the payment, the more you keep paying higher interest rates. No wonder, most Canadians prefer low-interest credit cards.

However, there is another option. Even though the interest rate of a second mortgage is higher than the primary mortgage, it is lower than the accrued interest on credit cards and personal loans. A minimum payment of a second mortgage can be much lower than that of a credit, creating better cash flow for the borrower.

That means you can acquire a second mortgage to pay off high-interest consumer debt and save a lot of money in the long-run.

2. You have a poor credit score

According to the Huffington Post, the average Canadian credit score is 600 points. If you’re a Canadian, anything below 650 points is considered a bad credit score and you will probably find it challenging to obtain new credit.

Maybe it was that single loan that you defaulted for a month or that credit card charge-off—as long as you have a poor credit score, you will likely be the last in line when applying for loans.

The good news is that you can get a second mortgage even with a poor credit score. The lender can overlook the poor credit score based on your consistency on paying the primary mortgage and if you have a lot of home equity, albeit the interest rate will be higher due to the risk involved.

If you can pay off bad credit loans and defaulted debts by leveraging a second mortgage, you can start to repair your credit.

3. You’ve been turned down by traditional lenders

You never know when mortgage rules will change. Since the recent strict new rules on mortgage lending, more Canadians have been turned down by traditional lenders. In fact, mortgage brokers reckon that the rejection rate has increased by 20 percent. Even those who were approved for a mortgage before 2018 can have their mortgage renewal or refinance request turned down due to the stress test.

So what should you do if you’ve been turned down by traditional lenders? Simple; apply for second mortgages offered by private lenders. Unlike traditional banks, private lenders don’t have their hands tied down by the new OSFI rules.

4. You need funds quickly

There are many reasons why you would need quick funds. Perhaps you’ve experienced an unexpected tragedy or looking for a new job, and you need quick cash until you’re back on your feet.

You could go for an unsecured loan, but you don’t want to end up paying high-interest rates. Payday loans are even worse, the fees and interest rates are exaggerated. Even if you did get a payday loan, the credit limit is $1500, and you probably need more than that.

What about RRSP withdrawal? Well, you will get penalty taxes for making that early withdrawal. For instance, if you withdraw $30,000, you will only receive $21,000 after the bank remits $9000, or 30 percent, to the government.

On the other hand, second mortgages will give you liquidity to your home equity without too much interest rates or taxes especially if the amortization is short-term.

5. You want to avoid high mortgage penalties

Prepaying the remaining balance of a closed low fixed rate mortgage loan can be expensive for Canadians. Most lenders will impose a breakage fee if you decide to walk out of the contract before the term expires. Sometimes, the mortgage lenders can overestimate the liability and proceed to double or triple the penalties, leaving you in a tight spot.

Nevertheless, instead of pre-paying the first mortgage early and selling the house to gain funds for investment capital or debt relief, you could apply for a second mortgage to access the funds and wait a little longer. A short-term second mortgage would prove to be cheaper than paying the high mortgage penalties.

6. You want to outsmart PMI

Canadians who can’t afford 20 percent down payment of the property’s value when applying for a mortgage are required to pay private mortgage insurance (PMI). There are also borrowers who don’t want to give out the 20 percent down payment so they can have funds for renovation and repairs. Even so, PMI premium rates aren’t cheap especially if you’re putting up 5% to 9.99% down payment.

But did you know taking a second mortgage could lower the overall mortgage expenses than going the PMI route? Despite second mortgages having higher annual payments than first mortgages, they cost less than PMI.

Consult a professional to find a convenient second mortgage

As much as applying for a second mortgage seems like a straightforward process, finding a second mortgage without professional assistance is like climbing a slippery mountain without a harness.

Every situation is different, and there are always details in the contracts that you need to understand clearly.

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The solution to debt isn’t more credit

Here’s the litmus test for determining if you have too much debt: if your income was delayed, could you pay your monthly bills? “If you couldn’t meet those expenses, you’ve got too much debt,” says Doug Hoyes, licensed insolvency trustee for debt relief experts Hoyes, Michalos & Associates. “We often see our clients facing this situation. They might think the answer is to borrow to alleviate the immediate problem. But the solution to too much debt is not to get into more debt. You have to get off the hamster wheel.”

The cycle Hoyes is talking about goes something like this: Something happens to cause an initial shortfall. It might be that you get sick, injured, lose your job, split with your partner. You start to put too much on your credit cards and you can’t pay them off. “Then, you get an additional credit card and you continue to rack up more and more debt on your cards. The number of cards and balances keep going up.”

When you’re finding it difficult to make ends meet, more borrowing isn’t the answer.
When you’re finding it difficult to make ends meet, more borrowing isn’t the answer.  (CONTRIBUTED)

Now you have a problem, so you decide to solve it by consolidating your debt. You might try and apply for a line of credit, which you may not qualify for, or get a payday loan with monstrous interest rates. “Once you start getting payday loans, it’s very difficult to recover,” warns Hoyes. “In some instances, payday loans cost you $15 for every $100 you borrow. In order to pay it off, many of our clients have to get another payday loan.”

So how do you stop this cycle of debt? “Rather than continuing to add more to what you already owe, it’s important to stop borrowing and stop the bleeding,” says Hoyes. He suggests taking an inventory of what you owe and then making an honest budget to see if you can find a way to pay it back on your own. “You might also consider ways to add income rather than just deal with expenses. Perhaps you get a second job or a roommate to help with expenses.” In the likely situation where you discover you can’t do it on your own, consider talking with a Licensed Insolvency Trustee to help you find a way to pay off a few debts.

For most clients, the best way to deal with debt is a consumer proposal or bankruptcy, explains Hoyes. “In a consumer proposal, we make a deal to pay back considerably less than the amount owing. Instead of making minimum payments for decades or declaring bankruptcy — your last resort — with a consumer proposal, you pay an agreed amount that’s much less than what you owe over a five-year period. Then three years later, it comes off your credit report.”

As Hoyes explains, it’s not about consumers running from debt. “It allows them an opportunity to make manageable payments and ultimately, get a fresh start.”

 

Source: The Star – Thu., Aug. 16, 2018

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Late payments set to rise on Canadians’ $599-billion of credit card, non-mortgage debt, Equifax predicts

‘We will start to see delinquency rates inching up a little bit, and debt probably slowing down,’ as Bank of Canada starts raising interest rates, credit agency says

Canadian delinquency rates, which have been declining since the last recession, will probably reverse and begin to climb by the end of 2018 as the central bank presses ahead with interest rate increases, according to the country’s largest credit reporting firm.

Regina Malina, senior director of analytics at Equifax Canada, predicts late payments on the country’s $599 billion (US$455 billion) of credit card, auto and other non-mortgage consumer debt will begin to move “modestly higher” by the end of this year.

“Our prediction is that we will start to see delinquency rates inching up a little bit, and debt probably slowing down,” Malina said last week in an interview.

The delinquency rate — which measures the number of payments on non-mortgage debt that were more than 90 days past due — was 1.08 per cent in the first quarter, up slightly from the fourth quarter but still close to the lowest level since the 2008-09 recession.

The Toronto-based analyst declined to estimate how high delinquencies will climb, saying it depends on the pace of interest rate increases and what happens in the trade battle between the U.S. and Canada. She cited the experience in Alberta, where delinquency rates rose in some instances 20 per cent or 30 per cent on a year-over-year basis after the oil-price collapse. Such an extreme case, however, isn’t what Equifax is predicting. “It will only happen if we start seeing deterioration in employment numbers,” she said, adding delinquencies should remain “still very low,” and “they’re just going to start inching up a little bit, probably not double digits.”

CHANGE COMING?

Household credit has ballooned to unprecedented levels in Canada, as in many other developed countries, amid historically low interest rates. That hasn’t posed too many difficulties so far, because the economy and the labour market have generated solid growth, allowing people to handle servicing costs. But with the Bank of Canada intent on raising rates and the U.S. and Canada engaged in a tit-for-tat tariff fight, that could change.

A red flag in the Equifax data was a decline in the share of people who completely pay off their credit cards each month. The 56 per cent who did so in the first quarter matched the fourth-quarter number and was down from as high as 59 per cent last year. It’s a small but important detail, according to Malina.

“The changes aren’t big, but when they’re consistent and we see it for two or three quarters, we start to believe it,” she said. “Given that less people are making their credit card payments in full, and those people are usually people with lower delinquency rates, we might be seeing overall delinquency rates deteriorating.”

A red flag in the Equifax data was a decline in the share of people who completely pay off their credit cards each month. Elise Amendola/AP Photo file

Consumer debt including mortgages was $1.83 trillion in the first quarter, up 0.4 per cent from the end of 2017 and 5.7 per cent from the same quarter a year earlier, Equifax said.

Excluding mortgages, Canadians carry an average of $22,800 each in debt. Some other highlights from the report include (all figures exclude mortgage debt):

Those between the ages of 46 and 55 have the highest average debt loads, at $34,100.

That age group is also seeing the largest increase in debt, year-over-year, at 4 per cent.

Of nine cities listed, Fort McMurray, Alberta, had the highest average debt levels, at $37,800, as well as the highest delinquency rate, at 1.72 per cent.

Vancouver and Toronto saw the highest rate of debt accumulation in the first quarter, with 5.2 per cent and 5 per cent growth from a year earlier Montreal is the least indebted city, with average debt loads at $17,300 Ontario and British Columbia have the lowest delinquency rates, at 0.95 per cent and 0.84 per cent. Nova Scotia, at 1.74 per cent, had the highest.

Source: Bloomberg News Chris Fournier

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3 things you probably didn’t know about your credit score

A photo illustration shows charts for credit scores on a computer in North Vancouver, B.C., Wednesday, June, 15, 2016.

Here’s what most Canadians likely know about their credit score: It’s a number somewhere on a scale from 300 to 900 — and the higher that number, the easier and cheaper it generally is to get credit.

If you want to take out a mortgage or auto loan, a good credit score improves your chances of being approved and getting a lower interest rate. A high score may also give you access to instant-approval credit cards and loans.

 

But here’s something you probably didn’t know:

No one really knows exactly how credit scores work

For obvious reasons, Canada’s two credit-reporting agencies, Equifax and TransUnion, do not reveal the exact formula through which they come up with credit scores. If they did, it would become easy for anyone to game the system.

 

The implication here is that most advice you get about how to improve, build or repair your credit score is really an educated guess. Based on anecdotal evidence and what they see dealing with clients, financial advisers have a pretty good idea of how different types of behaviour affect credit scores. But they can’t tell exactly how much of a difference each one really makes.

That’s why Douglas Hoyes, a licensed insolvency trustee at Kitchener, Ont.-based Hoyes, Michalos and Associates, is skeptical of strategies that entail taking out costly loans just so you can supposedly build or repair your credit score faster.

WATCH BELOW: Huge price to pay for payday loans

Borrowing at, say, 30 per cent interest is guaranteed to cost you a pretty penny. The gain, on the other hand, it quite uncertain. Taking out a loan will definitely improve you score if you make your payments on time, but how much of a difference will it really make? No one can say for sure.

Given the uncertainty, Hoyes advises borrowing through the lowest-cost debt you can access and trust that your credit score will gradually improve if you keep on top of your finances.

WATCH BELOW: Dollars and sense: Credit score basics

For those with no credit history or a poor credit score, a good first step is getting a secured credit card such as the Home Trust Visa, according to Hoyes. “Secured” credit means the lender will ask you to put down, say, a $1,000 security deposit for a $1,000 credit card limit. The point of such a credit card isn’t to borrow money to finance expenses for which you don’t have cash at hand but to show that you can make disciplined debt repayments.

Secured credit cards normally come with steep interest rates. The no-fee version of the Home Trust Visa charges interest of 19.99 per cent, but borrowers need not worry about it if they pay off their balance in full and on time, Hoyes noted.

 

Credit scores are designed with banks, not you, in mind

You might think that diligently paying off your credit card bills as soon as they come would get you the best possible score. You might be wrong.

Some financial advisers and debt management experts believe carrying a small balance of up to 30 per cent of your available credit on your card might actually boost your score more than having a balance of zero.

That’s because “credit scores are meant for the benefit of the banks, not you,” said Hoyes.

Banks are happy with customers who reliably repay their debt. But they also make money off charging interest. So they may be happiest with customers who will eventually repay their debt but keep carrying a balance, on which they’ll have to pay interest, explained Hoyes.

He advises doing what’s best for your pocketbook and skipping on financial behaviour that will ultimately cost you more — even if it means your credit score will be a bit lower.

 

Credit scores don’t matter as much as you think

A third thing to keep in mind about credit scores is that they aren’t necessarily the only metric a bank will use to assess your creditworthiness. “Banks may have their own formulas, too, which are different from whatever Equifax and TransUnion are using,” noted Hoyes.

Finally, he added, a bad credit score won’t shut you out of borrowing forever. Even bankruptcy is something you can recover from relatively quickly, if you have a good, stable job and show financial discipline, said Hoyes.

“I have plenty of clients who bought houses two years after being discharged from bankruptcy,” he told Global News.

Source: 

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Bankruptcy scores: Why lenders may turn you down despite a good credit score

Few borrowers know about bankruptcy scores, but lenders have been using them for years.

Few borrowers know about bankruptcy scores, but lenders have been using them for years.

Few have heard of them, but they’ve been around for a few years: Bankruptcy scores.

Most Canadians know about credit scores, and some are acutely aware of their three-digit number. Where you fall on a scale from 300 to 900 can affect whether or not you qualify for a mortgage for your dream house, a car loan or a credit card and how much you’ll pay for the privilege of borrowing that money.

 

But there’s often another set of numbers that could cause lenders to deny you a loan or hike your interest rate — even if your credit score doesn’t look so bad. Financial institutions often rely on bankruptcy scores to gauge the probability that you’ll go financially belly up in the next 12 to 24 months.

Credit reporting bureau Equifax has a Bankruptcy Navigator Index that it says allows lenders to “uncover the financial red flags not so obvious at first glance.” And competitor TransUnion has its own CreditVision Bankruptcy Score.

 

The latter “is an empirically-derived model designed specifically for the Canadian market,” TransUnion Canada told Global News via an emailed statement. “The score ranges from 100 to 950, with lower scores indicating a higher risk of filing for bankruptcy or [a consumer] proposal,” the company added, noting that financial institutions, telecom companies and lenders in the auto-loan industry, among others, use it.

TransUnion has had bankruptcy scores for a number of years but introduced its CreditVision score in 2015, it said.

Equifax did not respond to two requests to provide additional information on its Bankruptcy Navigator.

 

How bankruptcy scores work

Bankruptcy scores are aimed at detecting risky borrowers that sometimes go under the radar with traditional credit scores, licensed insolvency trustee Doug Hoyes told Global News.

“It turns out that there is a significant difference in behaviour between the person with bad credit who will not file bankruptcy and the person with a similar bad credit score who will declare bankruptcy and this is what your bankruptcy score measures,” Hoyes, co-founder of Ontario-based debt-relief firm Hoyes Michalos, wrote in a blog post.

 

Sometimes, there’s a lag between when an overstretched borrower reaches the point of no return and when that reality will be reflected in his or her credit score. It’s possible for people with scores in the 600-700 range to be on the verge of defaulting on their debt repayments, said David Gowling, senior vice-president at debt consultancy MNP.

“Some people come in telling me how great their credit score is, but then you find out they’re using one type of credit to pay another type of credit,” Gowling told Global News. And because they’re still able to make minimum payments, “the credit score hasn’t caught up,” he added.

According to Hoyes, compared to someone with a bad credit score who will stay afloat, someone who is at high risk of going bankrupt tends to:

  • Use credit more often;
  • Apply for credit more often and have more recently acquired debts or credit accounts;
  • Have fewer accounts in collection. (This is because people who rely on debt to pay more debt are often careful about not missing payments in the belief that this will grant them access to more credit);
  • Have a higher credit utilization rate, i.e. carrying a credit balance that takes up a large percentage of your borrowing limit.

 

While credit scores are a look at your borrowing history in the rear-view mirror, bankruptcy scores likely pick up on these telltale signs of might happen in the near future, Hoyes told Global News.

In general, the credit file of someone at high risk of bankruptcy tends to show much more recent activity, which is why applying for new credit in an attempt to improve your credit score can backfire, according to Hoyes.

WATCH: Lenders behave like car insurance companies: If you don’t have a driving record, you’re automatically a very risky driver.

What bankruptcy scores mean for you

Bankruptcy scores affect borrowers in three main ways, Hoyes said. Like credit scores, they can influence both how much you’ll be able to borrow and at what rate. But they could also result in lenders deciding to sell your debt to so-called debt buyers.

 

Debt-buyers are companies – sometimes collection agencies – that buy delinquent debt at a deep discount and then try to collect some of that debt.

If a lender has, say, 100 borrowers who are late making debt repayments, it can use a bankruptcy score to decide which ones to offload to a debt-buyer. Selling the riskiest accounts for a fraction of the face-value of the credit balance means writing off some debt, but the loss for the lender might ultimately be less than if the borrowers filed for bankruptcy.

The thing is, though, that there’s no way to know what your bankruptcy score is. While consumers can review their credit reports and purchase their credit scores, bankruptcy scores are typically only available to lenders.

The key takeaway, though, is that if you’ve reached the point where you’re using new debt to pay old debt, your decent-looking credit score is probably meaningless.

Source: 

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