Measuring economic damages to a person's credit
In employment and personal injury suits it is not uncommon for the plaintiff, because of their injury or difficulties obtaining replacement employment, to have difficulties keeping current on their financial obligations. As a result a good number of people’s credit rating will be damaged as a result of the injury or lost of employment. As is well known, a damaged credit rating effects the cost of future credit arrangements - i.e. the injuried or terminated person will pay higher interest rates.
The economic damage to the person’s credit rating in many instances is clear but the method to measuring the economic damages related to the damaged credit is not. Here are some thoughts on estimating the economic damage to credit from some recent cases we have worked on.
What information do you need:
1. A current credit report from Experian or other major credit reporting agency
2. A current credit SCORE from major credit reporting agency. Many credit reports will have the Beacon or other score for purchase
3. Previous credit reports and credit scores (will mostly not have but will ask)
4. The financial terms for the financial agreements at issue. For instance, the interest rates on the credit cards that the person now has to pay a higher rate on.
5. Need an interview with the plaintiff - to describe and list each area of damage.
How to do actually measure the economic damage to the person’s credit (some ideas):
One way is to look at the potential loss in wealth attributed to the lowered credit rating:
Specifically, the issue is to measure the loss of "wealth" between two points in time and that is attributed to some event.
A few definitions:
Wealth = The net present value of the person's future earnings
Credit Worthiness = The "scoring" of the person's credit rating at each point in time. (People with excellent ratings will score in the mid-to high 700s or greater, and the other direction for those lacking credit worthiness.
Several credit scorings bureaus provide scoring or credit worthiness measures for the person at two different points in time.
Loss of Credit Worthiness = Merely measure the differential in scoring between the two points, e.g. a reduction from a composite scoring of 700 to 550 would represent a negative differential of 21.4%((700-550)/700).
Loss of "Wealth" = This is represented by applying the negative differential from above to the net present value of his/her future earnings, e.g.(21.4% x $1,000,000 = $214,000).
Part of the rationale is based on the concept that lacking creditworthiness precludes one from taking advantage of those financial decisions that are essential to wealth building. Examples include the inability to keep/buy a larger home, inability to acquire credit cards to use in basic business functions such as travel, inability to accumulate "excess" earnings that could be placed into investments suchas IRAs, etc.
These items tend to have a "snowball" or cumulative effect that is self-perpetuating and is an accelerating downward spiral.
The economic damage to the person’s credit rating in many instances is clear but the method to measuring the economic damages related to the damaged credit is not. Here are some thoughts on estimating the economic damage to credit from some recent cases we have worked on.
What information do you need:
1. A current credit report from Experian or other major credit reporting agency
2. A current credit SCORE from major credit reporting agency. Many credit reports will have the Beacon or other score for purchase
3. Previous credit reports and credit scores (will mostly not have but will ask)
4. The financial terms for the financial agreements at issue. For instance, the interest rates on the credit cards that the person now has to pay a higher rate on.
5. Need an interview with the plaintiff - to describe and list each area of damage.
How to do actually measure the economic damage to the person’s credit (some ideas):
One way is to look at the potential loss in wealth attributed to the lowered credit rating:
Specifically, the issue is to measure the loss of "wealth" between two points in time and that is attributed to some event.
A few definitions:
Wealth = The net present value of the person's future earnings
Credit Worthiness = The "scoring" of the person's credit rating at each point in time. (People with excellent ratings will score in the mid-to high 700s or greater, and the other direction for those lacking credit worthiness.
Several credit scorings bureaus provide scoring or credit worthiness measures for the person at two different points in time.
Loss of Credit Worthiness = Merely measure the differential in scoring between the two points, e.g. a reduction from a composite scoring of 700 to 550 would represent a negative differential of 21.4%((700-550)/700).
Loss of "Wealth" = This is represented by applying the negative differential from above to the net present value of his/her future earnings, e.g.(21.4% x $1,000,000 = $214,000).
Part of the rationale is based on the concept that lacking creditworthiness precludes one from taking advantage of those financial decisions that are essential to wealth building. Examples include the inability to keep/buy a larger home, inability to acquire credit cards to use in basic business functions such as travel, inability to accumulate "excess" earnings that could be placed into investments suchas IRAs, etc.
These items tend to have a "snowball" or cumulative effect that is self-perpetuating and is an accelerating downward spiral.
Labels: damages
posted by The Experts @ 10:51 AM
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