| Secret Credit Report Scores |
| By Credit Federal |
Published
11/1/2007
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Credit Report
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Other Types of Credit Report Scores
Lenders examine details of your spending habits to estimate if you will be a high risk or a profitable customer.
Most likely you're already aware of credit report scores, and how they are used to judge whether you are a good or a bad risk to creditors. In short, your score not only determines whether your credit card or loan application gets approved or rejected, but also at what interest rate if it does get approved.
But your credit score is just the start of how financial institutions judge you, and those three digit numbers are not the most commonly used scores.
Every trackable transaction is used to determine your most desired transactions, how you pay your bills, and how much profit you generate for your creditors as well as other factors. These scoring formulas might be created by the credit bureaus, third parties or the lenders themselves. Banks and other financial institutions are secretive about most details regarding these other scoring systems. It is known; however, they they are used to determine the following:
The kinds of credit card offers you receive
If your credit limits are raised or suddenly lowered
If your over-limit credit or debit transactions are approved
If your credit card issuer contacts you about a suspicious transaction, prevents it or shuts down your account
How cooperative your issuer is about waiving fees or lowering your interest rate
How quickly your issuer calls you if your payment is late
Whether a collection agency contacts you about an old debt and how hard they push
Here are some ways you may be scored, starting with the most well known.
Credit risk score: This is the credit score most of us know all too well. The leading credit score, the FICO, was created by Fair Isaac and ranges from 300 to 850, with scores over 700 generally considered to be low risk, and scores below 500 to be high risk.
Response score: This score predicts the likelihood a consumer will respond to an offer of credit, such as a new credit card or a special, introductory balance transfer offer. Credit card issuers use response scores to decide whom to target and how to customize offers to appeal to particular consumers.
Application score: This score is from data collected on your credit application, which you listed. Info such as how much you earn, how long you've lived at your current address and how long you've worked for your current employer. Application scores are typically used in combination with other scores, such as credit and bankruptcy scores, to determine whether to open the account, what rate to give and how much credit to extend.
Bankruptcy score: Credit scores generally estimate the odds you'll miss a payment in the next two years. Bankruptcy scores predict the likelihood you'll default on debt entirely and file for Chapter 7 liquidation or a Chapter 13 repayment plan. Bankruptcy scores range from 1 to 300, and the higher the score the lower the predicted risk. Most lenders use both credit scores and bankruptcy scores to help assess the risk that you won't pay.
Revenue score: Creditors have the goal of getting the most profit out of every account, and the revenue score helps them determine this possibility.
Attrition risk score: Attrition risk means whether or not a customer will be likely to stop using a credit card. This score is typically used in combination with other scores to determine what to do next if such customer appears about to jump ship. If an account generates a lot of revenue and is deemed at low risk for default or bankruptcy, the issuer might aggressively try to keep your business by jacking up your credit limit, lowering your rate and pelting you with convenience checks. But, if an account is not profitable or is deemed a high risk, the issuer might just let the account go cold or close.
Behavior score: Whereas credit scores give creditors a glimpse of how a consumer is handling all of his or her credit accounts, behavior scores typically focus on a single account (the one you have with that particular creditor). Things looked at are whether the user pays off bills every month, carries a balance occasionally or frequently pays only the minimum. That information typically isn't available on a credit report, but is contained in the issuer's databases, along with other data that helps the score describe how each customer handles his account. A behavior score might be used in conjunction with other scores, such as credit or bankruptcy scores, to decide whether an overdue payment is an aberration (maybe he's away) or a sign of impending financial crisis (maybe we should call the consumer today and find out what's going on).
Transaction score: These are the scores run each time your credit card is swiped to determine whether the transaction should be approved. Issuers are typically looking for signs the transaction might be fraudulent, but transaction data can be used in other ways as well.
Collection score: This regards whether or not an account has been turned over to a collection agency due to past due payments. Collection scores assess the likelihood you'll be able to repay. Collection agencies watch for all kinds of evidence that your financial situation may be improving. If, on the other hand, your credit is in the pits or the amount involved is miniscule, the collection agency may not aggressively pursue resolution.
As you can see by the other types of credit scores, creditors and lenders combine and use different types of scores to assess you. One scoring model, the TRIAD Transaction Score created by Fair Isaac, takes into account credit risk, attrition, potential revenue and patterns in the user's charging behavior that might indicate higher or lower risk.
How loan lenders and credit card issuers decide what to do with these scores depends on their individual policies, and even those are often changing. Credit card issuers constantly adjust their systems to maximize profits while also minimizing losses.
Fact is, financial institutions typically are not eager to reveal how they make the approval and rate decisions. While you have a federal right to see your credit scores, that's not true with other scores, which lenders often consider proprietary information.
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