Uncovering hidden credit scores |
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 The media's spotlight on the
credit card industry recently has exposed card issuers' use of information other than credit scores to evaluate cardholder risk, such as
scrutinizing whether cardholders hold jobs in struggling industries and live in areas battered by the housing slump. Did issuers recently start
using other scores on consumers or have they quietly been using them for years?
 They have been using -- not only information outside
of the credit report -- but they've been using scores outside of the widely known and recognized FICO risk score for many, many years. I don't
know that I would say they've been doing it surreptitiously or in a sneaky manner; it's just no one's bothered to shed any light on it, and it's
not something that they would typically disclose to a consumer. Quite frankly, if the media isn't talking about it, then really nobody knows
about it.
Do you remember a couple of weeks ago when the whole
CompuCredit thing came out? They were
using psychographic data and merchant information and had to disclose that in the lawsuit paperwork? Everybody started talking about, "Oh, my
gosh, where I shop is going to affect my credit score." That's kind of what's going on here -- there are these other scores that are being used
that no one really knows about. The minute someone finds out about it, it tends to -- I don't want to say infuriate -- but at least concern
consumers that there's more than just this one credit score that's being used out there.
Scores used in customer acquisition
Besides credit scores, what other analytic scores
are card issuers using and for what purposes?
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| A look at risk scores |
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Let's start at the very beginning of the acquisition
process. Obviously you have a credit card issuer who uses credit scores to cull down a large universe of potential prospects. That's kind of a
typical use of credit scores. These are the same scores that we're both familiar with.
Once they get that list generated, they'll typically use other types of scores to further refine the list. They can certainly use
bankruptcy scores, so scores that predict the likelihood of somebody filing a bankruptcy. Equifax has probably the most commonly known and most
commonly used bankruptcy score. It's called the bankruptcy navigator index, or BNI.
You'll certainly have lenders utilize what's referred to as a response model -- what's the likelihood of you responding to one
of those offers that they mail to you.
You'll certainly have them use revenue scores -- what's the likelihood, if you do respond and become a customer, that you'll
generate positive revenue.
Now that you've actually responded to one of those offers and filled out the application and mailed it back in, the issuer will
commonly pull what's called a back-end report to set the final terms of the card, because most of the terms that are sent in the marketing pieces
are conditional terms -- you know, up to $50,000, a rate as low as 7.9 percent. They're tempting you, but they're not actually giving you a firm
offer until you actually fill out the application and mail it back in. They'll pull a back-end credit report and/or another credit score.
How is a back-end report different from a regular
credit report?
It's just a credit report -- back-end just
refers to where in the process it takes place, it means it's on the back-end of the prescreen process. But it's the same credit report that you
and I can see when we go to pull our own credit reports. It's no different.
So, they'll use a traditional FICO score in that case as well. There's a variety of different FICO scores, (called) the
industry-adjusted versions of FICO. There's a bank-card version, an auto loan version, a personal finance version and then an installment loan
version. Most of the large credit card issuers use the bank-card version, so even though it is a FICO risk score, it's the bank-card-adjusted
version of it, meaning that it's more refined for bank-card issuers.
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