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While lenders are always interested in lending money and finding new clients to lend to, they are also always looking to reduce the risk associated with lending. Credit scores are one of the most used and most convenient ways to assess this risk. There are of course many other ways to evaluate the risk of lending. This may include your credit history, income, overall financial health and bankruptcy score (or BNI Score).

The average Canadian typically has never heard of the bankruptcy score, it’s a little-known form of risk evaluation and assesses your overall creditworthiness.

What Is A Bankruptcy Score?

A bankruptcy score measures the probability that you will file for bankruptcy within a specific time period. 

Lenders use various tools and tactics to determine the risk level of lending to different borrowers. This is done to reduce their lending risk while continuing to lend. Assessing the bankruptcy score of various borrowers will tell lenders how likely each applicant is to file for bankruptcy at some point in the future.

Interestingly, there is a difference in the financial habits of a person with a bad credit score who won’t declare bankruptcy versus a person with a similar credit score who will eventually file for bankruptcy. This is what a bankruptcy score helps to identify.

A bankruptcy score and a credit score are two different measurements. But both can be assessed when lenders determine a person’s ability to get approved for a loan.

People who are expected to file for bankruptcy may have the following characteristics:

  • They use credit more often
  • They apply for many loans and credit products within a short time frame
  • They have more recently-opened accounts
  • They have a higher credit utilization ratio
  • They have accounts in collection

All of these traits describe someone who has a more active credit history. Credit bureaus provide credit risk models to help lenders identify these types of borrowers.

How Does The Bankruptcy Score Work?

Your bankruptcy score evaluates the probability of you needing to file for bankruptcy within a specific amount of time, typically a 24-month period. This affects your creditworthiness because people who have a high risk of potentially needing to file for bankruptcy are less desirable candidates for loans.

When you file for bankruptcy, your lenders will need to absorb the losses associated with your unpaid loans. A bankruptcy score allows your potential lenders to evaluate the risk that any loan they give you will end up completely uncollectible.

Can You Check Your Bankruptcy Score?

The bankruptcy score is often described as secretive as you’re unable to purchase your bankruptcy score like you can with a credit score. A bankruptcy score is meant specifically for use by lenders. There are no specific rules for how lenders must calculate a bankruptcy score. For some lenders, the higher the bankruptcy score the better, and for others the lower the bankruptcy score the better.

Is Your Bankruptcy Score The Same As Your Credit Score?

Yes and no. Both a credit score and a bankruptcy score allow a potential borrower to assess your creditworthiness, but that’s the extent of their similarity.

Someone who has a high risk of filing for bankruptcy could have a good credit score. Bankruptcy scores and credit scores each assess a different type of risk; this is why both are necessary for a lender to properly evaluate a potential new borrower.

How Is A Bankruptcy Score Different? 

Typically a person who is on the verge of needing to file for bankruptcy will communicate certain credit behaviours, which is what the bankruptcy score measures. Here are a few of the factors on how a bankruptcy score is calculated:

  • An increase in the amount of credit a consumer is using
  • A lot of new loans, credit cards and payday loans
  • Carry a heavy debt burden are a long period of time
  • When it’s obvious that a consumer is living off their credit cards

Please keep in mind that these are general guidelines and that most lenders have their own specific ways of calculating and using a bankruptcy score.

How To Improve Your Bankruptcy Score?

It’s relatively hard to say how someone can work towards improving their score. This is because bankruptcy scores are so secretive and there aren’t any hard and fast rules. But generally speaking, if you’re being turned down for a loan because you have a bad bankruptcy score, you need to work on your overall financial health.

This can be done by putting into action many of the same changes you would to improve your credit score.

  • Work to pay off the majority of your debts.
  • Always pay your bills on time and in full.
  • Continue to responsibly y use some of your credit.
  • Finally, pay particular attention to how much of your available credit you’re using. Several maxed out credit cards are definitely a red flag that all lenders look for.

Use The Bankruptcy Navigator Index 4.0 (BNI Score)

Equifax provides lenders and creditors with a bankruptcy score tool called the Bankruptcy Navigator Index 4.0 (BNI score 4.0). It predicts the odds of an individual filing for bankruptcy over the next 2 years. Bankruptcy is a huge risk for lenders. Given how active today’s consumers are when it comes to accessing credit, bankruptcy risk can be more difficult to anticipate.

That’s where a tool like Equifax’s BNI score 4.0 comes in. The index is designed to help creditors identify early warning signs that suggest bankruptcy may be a possibility, even with borrowers who make timely payments. It also helps keep tabs on loan portfolios to quickly spot risky borrowers and make prompt, appropriate decisions.

BNI score 4.0 gives scores that range from 1 to 999. The lower the number, the higher the risk of bankruptcy.

What Can You Do If You’ve Been Rejected For A Loan?

If you’ve filed for bankruptcy in the past and it’s still noted on your credit report, the odds of being turned down for a loan are pretty high. But lenders may also reject your loan application even if you’ve never filed for bankruptcy, especially if you have a low credit score, inadequate income, or excessive debt.

If you’re denied credit, consider working on improving these factors.

  • Improve Credit Score – Paying all bills on time and avoiding spending close to your credit limits to keep your credit utilization ratio low are some things that may help your credit score. 
  • Reduce DTI Ratio – You should also focus on paying down your debt to minimize your debt-to-income ratio. The lower your DTI, the more money you’ll have to pay your new loan. 

Taking these steps can go a long way at improving your credit score and strengthening your financial profile, which will boost your odds of accessing credit in the future. 

Bottom Line On Bankruptcy Score (Or BNI Score)

If you truly need to file for bankruptcy you should not hesitate to seek the advice and help of a professional Licensed Insolvency Trustee. They can provide you with the counselling you need to make sure you deal with your debt issues. This way you can start working toward improving both your credit score and bankruptcy score and create a better financial future for yourself.

Bankruptcy Score FAQs

What is a BNI score?

A BNI score measures the behaviour of consumers and identifies those who are showing signs of financial struggle. For instance, people who have several credit cards, spend close to their credit card limits, and apply for multiple loans within a short time frame will score lower on the BNI scale. This shows lenders that these consumers are more likely to file for bankruptcy some time within the next 24 months.

What does a bankruptcy score do to you?

Your bankruptcy score may affect your ability to get approved for a loan or credit product. It may also impact the interest rate you can secure if you are approved.

How do you check your bankruptcy score?

While you can find out your credit score by pulling your credit report, there isn’t any way for you to find out what your bankruptcy score is. These scores are only available to creditors and lenders.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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