Credit scores and what influences them, according to Fair Isaac

Credit scores and what influences them, according to Fair Isaac


 Liz Pulliam Weston was able to crack open Fair Isaac a bit and got them to reveal a little bit more on their scoring model.

	Effect on a 680 score	Effect on a 780 score
Maxed-out card	-10 to -30	-25 to -45
30-day late payment	-60 to -80	-90 to -110
Debt settlement	-45 to -65	-105 to -125
Foreclosure	-85 to -105	-140 to -160
Bankruptcy	-130 to -150	-220 to -240

The "damage points" information, as revealed here, will be made available through FICO at its myFICO.com Web site starting this weekend.
Besides giving out how much your score will DROP, there is still not much know about how the starting score is calculated. The statistical model (aka FICO Score) used by all three credit bureaus and in some form or other by all banking institutions was developed by Fair Isaac. This scoring model did not start out to be the industry standard, but since it was the most complete model used available at the time when the banking industry was interested in such information, it became an integral part of the credit granting process. The model took years to develop and Fair Isaac has all kinds of empirical data to back up the accuracy of their model. The lending industry, who finds comfort in numbers anyway, gets a warm, fuzzy feeling of fairness: since most everyone uses it, it gives the impression of everyone being measured by the same yardstick.
Why WHY WHY  doesn't Fair Isaac tell anyone exactly what goes into the model?
The company maintains that their model is a proprietary system, and it is protecting itself - if it gave away the product, how would Fair Isaac make money? I can see their point, to a certain extent, but many (if not most) American and Canadian consumers are at the mercy of this statistical model. Most people don't realize that the credit scoring model is a product being sold to lending institutions and, of course, the credit bureaus.
Aside from the fact that the mystery of the model is a big source of unfairness, is the model itself unbiased? At CreditInfoCenter, we get lots of questions about this, like "how do you raise your credit score?" What we found out is that lots of what goes into the score calculation is beyond the control of the consumer. Therefore, many people with a low credit score may be able to do nothing about it.

OK, let's get right down to the actual numbers. While we can't give you the whole math model, we can sure give you a piece of it.

At the credit scoring conference held by the FTC in July 1999, Fair Isaac gave the opening presentation and went over in detail some of the things used in calculating your score. The information I am giving out is based on the huge slide presentation given out by Fair Isaac at the July meeting.
Factors used to score you, in order of importance (information marked with a * is obtained from an application, not considered in a credit bureau score):

1. Major derogatory items on your report (bankruptcy, collections, foreclosure, slowpays)
2. Time at present job
3. Occupation (Professionals are given heavy weight)^*
4. Time at present address
5. Ratio of balances to available credit lines (the lower the better)
6. Are you a homeowner? (if you are, this is heavily weighted)^*
7. Number of recent inquiries
8. Age (50+ is the best)
9. Number of credit lines on your report
10. Years you have had a credit in the credit bureau database

So is this fair? Have you noticed that only two of the above items are entirely within your control? And what if you don't care for a professional (whatever that means) occupation?

According to the above scoring model, to get the highest score, you would have to: a) be at your job for a long time, b) be in a a professional occupation (like lawyer, doctor, banker, corporate officer, etc. - does webmaster count?), c) have lived in the same home (that you own, of course) for over 10 years, d) have had credit and loans for many years, e) be at least 50 years old, f) have almost no debt, g)and not have applied for any new loans for the last two years. Oh yeah, and h) have perfect credit.

Here are some of the actual numbers used to calculate your credit, but Fair Isaac says it isn't the whole model (which I do believe.)

Own/Rent	Own	Rent	Other	No Info
	25	15	10	17
Years at Address	<.5	.5-2.49	2.5-6.49	6.5-10.49	>10.49	No Info
	12	10	15	19	23	13
Occupation	Professional	Semi-Prof	Manager	Office	Blue Collar	Retired	Other	No Info
	50	44	31	28	25	31	22	27
Years on job	<.5	.5-1.49	1.5-2.49	2.5-5.49	5.5-12.49	12.5	Retired	No Info
	2	8	19	25	30	39	43	20
Department Store/ Major Credit Cards	None	Dept St	Maj CC	Both	No answer	No Info
	0	11	16	27	10	12
Bank reference	Checking	Savings	Check & Sav	Other	No Info
	5	10	20	11	9
Debt Ratios *	<15	15-25	26-35	36-49	50+	No Info
	22	15	12	5	0	13
Num Inquiries	0	1	2	3	4	5-9	No Record
	3	11	3	-7	-7	-20	0
Years in File	<.5	1-2	3-4	5-7	8+
	0	5	15	30	40
Number of Revolving Trades	0	1-2	3-5	6+
	5	12	8	-4
%Balances Available *	0-15%	16-30%	31-40%	41-50%	>50%
	15	5	-3	-10	-18
Worst Credit Derog	No Record	Any Derog	Any Slow	1 Satisf Lines	2 Satisf Lines	3 Satisf Lines
	0	-29	-14	17	24	29

Terms:

Bank reference
Whether or not you have a savings and checking account. How would the Fair Isaac model know about your income? The only place would be off an application.
Debt Ratios
Ratios of monthly credit obligations (credit cards, mortgages, car loans (not food, insurance, utilities) over monthly gross (before taxes) Income. Example: Your credit card bills, and car loans total $1,000/month. Your monthly gross income is $4,000/month. Your debt ratios would be 25% or 25. How would the Fair Isaac model know about your income? The only place would be off an application.

% Balances Available
This refers to amount of available credit you have left on revolving credit, like credit cards. It is calculated by dividing your total credit used (over all of your cards) by the total credit limits (over al of your cards) you have. So if you have a total unused credit card limit of $10,000 and you have used $2,000 worth of this available credit, you have used 20% of your available credit.
Years in File
Number of years you have been in the credit bureaus files, approximately the same amount of time you have credit (though of course, not necessarily).
Here is the entire Fair Isaac presentation on the FTC web site.