Credit Scoring Occurs in Groups
October 18, 2008
Did you know that due to the way in which credit scoring is calculated, a person can have a higher credit score after a “seasoned” (4+ years) bankruptcy than someone that never filed?! This is due to what’s known “grouping.”
Essentially the FICO scoring model takes into account intrinsic (individualized) as well as extrinsic (grouped with others) factors when determining score. Someone that has a broad and deep credit history (5+ accounts, revolving and installment +1 or more mortgages), but has filed bankruptcy in the past, could have a significantly higher score than someone who has very little credit history (e.g., less than 4 active trade lines).
Because the person that filed bankruptcy is now “grouped” with other bankruptcy filers rather than non-bankruptcy filers, the criteria for having a higher score is lowered, thereby increasing the chance to have a higher score relative to this (BK filer) group.
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