What OTHER Kinds of Credit Scores Do Lenders Use?

The major lenders use credit scores to make credit and business decisions. A credit score is based on credit information as delivered from a credit report.  But there are more credit scores used by lenders that aren’t as visible to the general public as the ubiquitous FICO score.The following is a list of not so commonly known scores that are used by lenders millions of times every day…

Risk Scores

Credit scores are used for risk and non-risk purposes.  Those that predict risk are used for different purposes such as acquiring new accounts, managing present accounts, and bankruptcy predictions.

Account acquisition scores predict the risk of taking on new accounts and are incorporated into strategies to determine interest rates, set credit limits, determine down payments or deposits.

Account management risk scores look at different levels of risk and payment behavior to determine credit limit increases or reductions and early stage collection strategies.  The same score is often used for acquiring new accounts and account management.

Bankruptcy scores predict the likelihood that an account holder will file for bankruptcy in the near future.

Collection scores are used to determine how to prioritize different stages of past due accounts and their collect-ability.  These are used by lenders and collection agencies.

Non-Risk Scores

Non-risk scores don’t predict whether you will pay your bills on time, but predict other behavior such as revenue potential, response potential and attrition potential.

Revenue scores predict the likelihood that revenue that will be generated from an account, which is usually from interest, late fees, interchange fees and annual fees.

Response scores are used to predict that someone will respond to an offer such as a credit card.  They’re part of the reason your mailbox is always full of credit card solicitations.

Attrition scores predict that someone will close their account or will start using a different credit card in lieu of an existing card.  These are the reason you get convenience checks in your statements.

Custom and Generic Scores

Custom scores are built on a company’s customer base and are not commercially available to other lenders.  They are usually commissioned by the lender because they want a more effective scoring tool than a general use credit score.  The data can be from their internal customer data and other data such as their customer’s credit reports. These scores are built based on customer data, company experience, company goals and policies. These scores are proprietary and are built internally or by third parties.  They are very powerful but also very expensive.

Generic scores are developed for general industry use and not based upon any one specific company’s data. Examples of generic scores are FICO scores and TransRisk Scores.  These are not built on one company’s data, but data from numerous sources that report information to the credit bureaus. Because of this, the scores can be used for credit granting purposes by most lenders for most financial services products.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Cards, Credit Report, Credit Score, Getting Credit, Money & Identity

This post was written by John Ulzheimer