Credit Scores–a primer

Clients often ask how their credit score will be affected by bankruptcy.

In response, I’m writing a two-part blog entry. This entry refreshes you to credit scores and will tell you where to go to get more information. Part two discusses how credit scores are impacted by filing bankruptcy.

Thinking about credit scores is an important consideration that one must talk over with his or her attorney before deciding whether to file bankruptcy, sit-tight, or negotiate debt-settlement with creditors and collection agencies.

Most people are aware that their credit score determines two things: if a creditor will lend money and at what interest rate.

But many consumers don’t realize that the “score” sold on many websites, including the major credit bureaus (Equifax, Experian and Transunion), is NOT typically the score used to determine credit.

The bureaus created their own scoring formulas and ranges and also use different data to gauge your credit worthiness. But these scores are “educational” and are not the score used by most banks.

The score that matters is the FICO score. FICO stands for Fair Isaac and was supposed to level the playing field for people seeking credit by looking at variables that supposedly predict likelihood of default. It was supposed to make consumers’ access to information collected about them “fair.” Ha ha ha! Now we have free annual access to our credit reports via, but we get to pay for the FICO score.

According to the FICO website, the score considers the following 5 factors in determining your score:

  • Payment history – 35%
  • Amounts owed – 30%
  • Length of credit history – 15%
  • New credit – 10%
  • Types of credit used – 10%

The actual formula is top-secret, and we really don’t know the exact variables that FICO uses. This is bad news for consumers because we are left to speculate how a blip or ding may or may not affect the score. says that 90% of banks use FICO scores to determine credit. So don’t waste money paying the other bureaus for their version of your credit score.

And for heaven’s sake, you may not need to pay for monthly score monitoring as offered by the bureaus.

Consider freezing your credit with each bureau instead. Think about it–the bureaus charge anywhere from $15 to $45 a month to “monitor your credit. In Georgia, you can freeze your credit report for $3 (free for those over 65)–and then no monitoring is necessarily necessary. Check out each bureau’s website for details.

The thing about credit scores is that a good score is hard won, and unfortunately for consumers, easily lost. This is true especially in today’s economy.

Read part two for my discussion of credit scores and bankruptcy.