Bankruptcy-risk rating helps determine whether we're a go or a no

You probably already know about your credit score. That's the number that helped increase your credit-card limit or perhaps prevented you from purchasing your dream car. There's another influential scoring tool you should know about: It's called the bankruptcy-risk score.

According to financial experts, this score is used secondarily to the credit score when financial institutions scrutinize a consumer's credit history.

Kept tucked away from consumers for nearly 20 years, this number differs from the credit-risk score because it's a little more specific. It measures how likely a person is to file for bankruptcy. It is used by credit-reporting agencies, and geared specifically to lenders.

Researchers say the score typically surfaces when a consumer gives the bank permission to pull his credit report during the application process for a new loan, bank card or credit card, and during the periodic review of clients' accounts to determine whether to increase a consumer's credit limit.

Karen Gross, director of the New York Law School Economic Literacy Coalition, believes some lending institutions are using the score for their own compliance risk.

"Banks are required, by law, to keep a reserve based on potential bad-debt losses," she says.

"The bankruptcy scores could enable lenders potentially to lower their bad-debt reserves because they can more accurately assess and hence narrow potential risk."

Credit-reporting agencies weren't the only ones dabbling in this approach. Researchers say a few credit-card companies in the late '90s developed a way to make the score a more powerful tool based on a combination of factors, including information about consumers' spending habits and types of charges.

Analysts at credit-reporting agencies say advanced mathematics and data analytics are used to determine the complex score.

However, they say, some variables come directly from your credit report, such as how the credit is used, how often a bill payment is late and the number of inquiries made.

So, why is it kept from the public? "The argument is that people spent time and money researching the scoring model, and no one wants to disclose the model because they are giving away the value of the research that they've conducted," says Gross.

However, the credit-bureau Experian is considering making its score available to consumers.

Although the bankruptcy-risk score may be kept under wraps, at least for now, researchers say you can improve your score by paying all of your bills on time, keeping debt balances low and opening accounts only when necessary.