Research from Fair, Isaac & Co. shows that people who file for bankruptcy generally follow predictable patterns of behavior.
The company that pioneered credit scoring looked at portfolios of national and regional credit card issuers, examining two years of the spending habits of individuals who filed for bankruptcy.
The study showed more card use picking up about 18 months before bankruptcy, and monthly payments beginning to decline.
The average purchase per month at 24 months before bankruptcy was $140. At 18 months this started to rise, reaching $160 at eight months. Two months after that the average charge declined to $150, and at three months before the filing it was down to $80.
Conversely, credit card balances tend to go up over that two-year period as cardholders pay less toward the bill and interest charges accrue faster.
Balances, which average $2,200 two years before bankruptcy, rise to $2,700 at 18 months and $3,700 at six months.
Fair, Isaac put forward several reasons for the decline in purchases as the filing nears. Some cardholders may be reaching their credit limits, their banks may have closed their accounts, or an attorney may have advised the cardholder to stop using the card so that fraud is not suspected.
The research indicates that a card issuer needs more than six months' warning of when a customer will file for bankruptcy. Six months is often too late to prevent a loss, but Careen Foster, product manager of Fair, Isaac's credit bureau services in North America, said six to nine months' notice will at least give a bank time to lower or cut off a credit line.
Fair, Isaac also looked at a subset of people called "surprise" filers, because they did not exhibit early signs of credit misuse. These people can hit the radar screen as late as three months before filing. Ms. Foster speculated that they might not have known they were going to declare bankruptcy and therefore did not stop or slow down card use earlier.