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Understanding a credit score

Those who are contemplating filing bankruptcy or have already done so are likely very concerned about their credit score. There may also be talk of it when addressing certain financial issues or trying to sign up for a new credit card. It is first important to remember that there is no one true credit score, so keep this in mind whenever someone determines your credit score, particularly if they are trying to sell you a credit monitoring service.

Different scores from different companies

There are actually a variety of different formulas that can be used. Many financial experts believe that FICO is the leading credit score company with their most commonly used score being the FICO 8. There are also other scores that use ones modified to fit the needs of a particular industry, such as a FICO Auto Score 5. And just to make things a bit more confusing, the FICO 8 score will vary depending on whether the information is drawn from Experion, TransUnion or Equifax. There is also VantageScore, which offers free credit scores and is used by some lenders as well. While these companies all pull from credit bureau files, they do not all get the same information.

Fair credit reporting laws

There are specific fair credit reporting laws on what information can be used for a credit score. Contrary to the fears or beliefs of some, it is illegal to consider such non-credit information as income, address, computer operating system, political opinions, online posts or gender in the calculation of a score.

What if it goes down?

As we said before, the scores will vary. If you look over the report and do not see anything that is cause for red flags, there is nothing to really worry about. Scores do, however, go down for the following reasons:

  • Charged more on credit cards than usual
  • Payments were late
  • Applied for a bunch of credit cards or credit within a short time period
  • A credit limit was lowered
  • Debt was sent to a collection agency
  • Your bankruptcy fell off your credit report

Legal guidance is always an option

The circumstances of one’s finances are as unique as the individual or family. Those looking to better understand their financial options can consult with an attorney who handles bankruptcy and finances.

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William T. Peckham
1104 Nueces Street, Suite 104
Austin, TX 78701
Phone: 512-487-7604
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