BNI – More Important Than Your Credit Score
You spent time and energy and focus on cultivating an impressive credit score, right? Still turned down for a loan or a mortgage? What gives? It just might be your BNI.
While your credit score is based on your proven track record, your Bankruptcy Navigator Index (BNI) is a ‘predictive’ score that looks at the future. It takes a look at how you use your credit and scores you on the likelihood that you will become insolvent in the next 24 months.
Your BNI is not available to you. Your credit report does not include this information. It is, for all intents and purposes, an internal score that is only available to lenders. Those in the auto loan industry, telecom companies, and financial companies are among the most prevalent users of this score.
Delinquency vs Bankruptcy – Where Does the Difference Lie?
The BNI was developed by Equifax (TransUnion has its own version called the CreditVision Risk Score). Equifax describes the difference between consumers with bad credit and those facing bankruptcy in the next 24 months as the following:
Delinquent consumers are in moderate financial difficulty and this is often a long-term chronic behaviour. They manage credit poorly and occasionally miss payments, sometimes with multiple missed payments leading to collection efforts and write-offs.
Consumers heading into bankruptcy are in severe financial difficulty. They often continue to make payments any way they can. They make smaller payments on their credit cards as their balances rise. They tap into their line of credit to make their installment loan payments. They shop for additional credit cards to use, a new line of credit, and consolidation loans.
Eventually, they reach their limit on their cards and lines of credit. They are forced to declare for bankruptcy, however, because they have not missed payments, their delinquency score remains satisfactory.
At The End of the Day…
Your credit score is important. The foundation on which the score is built is of primary concern to lenders. Building credit in a healthy manner is definitely the way to approach things.
- Work to keep your balances at less than 30% of your borrowing limit.
- Apply for credit products only when you absolutely need to do so.
- Most importantly, do not use credit to make payments on another form of credit. If you find that you are using a line of credit to make a payment on a credit card or using a short term loan to make a payment on a car loan….talk with a credit counselor.
- Make a plan to stop living on credit and stick to it.