Any potential buyer is aware of how one’s credit score can affect the rates on one’s Florida home loan. There’s a new, almost secret influential ratings tool, however, that many individuals are not familiar with:

The bankruptcy risk score.

According to financial experts, this score is used secondarily to the credit report when institutions scrutinize a consumer’s history and/or deals on interest rates and mortgages. Nevertheless, it’s important to note.

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.

Generally geared to lenders, this bankruptcy risk probability is meant to give loan officers an idea of potentially dangerous investments.

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. “In other words, to ensure the solvency of our lending institutions, we require that they maintain a certain capital-to-risk ratio. Bankruptcy scores give banks a more finely tuned instrument by which to assess true risk within their portfolio.”

What comprises your bankruptcy risk number?

Analysts at credit reporting agencies say advanced mathematics and data analytics are used to determine this 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.

“For a conventional credit score, you want a high number,” Gross says. “For a bankruptcy score you want a low number. And to increase the complexity, the range of the numbers is not the same. The credit score has a range of 350-850. The bankruptcy score range starts in the negative numbers and increases to possibly 2,000.”

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, Experian is considering making its score available to consumers.

“We feel that it may help consumers if they are getting in trouble with their debt,” says Samah Haggag, manager of analytics at Experian.

A July study by Experian is giving consumers some insight. The study ranked the states with the highest propensity to have consumers file for bankruptcy within the next year. The top five are:

1. Texas
2. Nevada
3. New Mexico
4. Louisiana
5. Arizona

With Florida unlisted, those looking for a mortgage in that state don’t need to worry as much about this factor during their application process. Other issues at stake for individuals looking for a Florida home loan include one’s debt-to-income ratio. This is used to see what sort of loan - if any - you qualify for.

The median consumer credit score has risen sharply since last year, according to an announcement from TransUnion today. This is based on the company’s proprietary Risk Index, which is the lowest it has been in five years in the United States. For those unfamiliar with this index, it measures the relative risk of default - the lower the value, the better the credit risk for individuals. The Index has improved from 120 in 2000 to 109 in 2005.

Overall, the average consumer credit score has risen six points – from 676 to 682 – since the first quarter of 2004. This is great news for anyone seeking a Florida home loan. While consumer credit scores have gradually been rising over the last two years, this marks the first substantial increase since the second quarter of 2000.

“Changes in the TransUnion Risk Index are a reflection of a variety of factors that include population shifts, regional and national economic conditions and location-specific trends in lending and credit usage,” said Chet Wiermanski, vice president of Analytics for TransUnion. “And while the TransUnion Risk Index is important, its true value to risk managers comes when it is coupled with our other research capabilities and services.”

Where does the data behind these figures come from? The TransUnion’s Trend Database, which consists of a quarterly snapshot of 25 million anonymous consumers randomly sampled from TransUnion’s national consumer credit database. Each consumer record contains more than 200 credit variables that illustrate consumer credit usage and performance.

As credit ratings around the country rise, approval on mortgages should increase, as well.