What is a Bankruptcy Score?

What is a Bankruptcy Score?

Written by Caitlin Wood
Last Updated November 30, 2021

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, including but not limited to credit history, income, overall financial health and the bankruptcy 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.

Learn more about bankruptcy in Canada here.

How does it 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.

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 it similar to a credit score?

Yes and no. Both a credit score and a bankruptcy score allow a potential borrower to assess your creditworthiness, but after this similarity they are in fact quite different. You want your credit score to be high in order to qualify for the loan you need and the interest rate you want. While on the other hand you probably have no idea what your bankruptcy score is.

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.

Typically a person who is on the verge of needing to file for bankruptcy will communicate certain credit behaviours. Here are a few of the factors what affect 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 guide lines and that most lenders have their own specific ways of calculating and using a bankruptcy score.

Click here for all the information you need on credit scores in Canada.

How to Improve Your Bankruptcy Score

Since bankruptcy scores are so secretive and there aren’t any hard and fast rules, it’s relatively hard to say how someone can work towards improving their score. 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 make if you were trying 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.

Dealing with Debt

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.


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Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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