Uncovering hidden credit scores
Page | 1 | 2 | 3 | 4 | 5 | 6 |

All of those models I just mentioned to you -- the bankruptcy score that Equifax builds, the variety of FICO scoring models, the behavior scores, the attrition scores, the collection scores, response models -- a lot of those are what are called shelf models, meaning they're on a shelf somewhere and all you have to do is tell one of the credit bureaus, "Hey, I want to start buying that score" and they'll just start putting it with your deliverable. They're built for general use, meaning that anybody can buy them and as such they're inexpensive -- there's no maintenance with them at all because either the bureau does the maintenance or FICO does the maintenance and they're very easy to use.

Someone like a credit union or a small regional bank -- they will depend almost exclusively on those prepackaged credit scoring models, like FICO, because they just simply don't have the money to go out and contract with someone to build a $3 million custom score and then have to rebuild it every 24 months because they get stale.

Now when you get into the big boys -- we all know who they are, the really big lenders and the credit card guys -- they don't want to just simply depend on a shelf model that everyone else is using, they want something that's customized specifically for them because of the performance. They may have a custom response model, they may have a custom risk score, they may have a custom attrition score, they may use a custom collection score, they may have a staff of people internally who build all these models themselves -- an entire operations, research and analytics team -- and some of them do that versus outsourcing it. Some of them would rather pay someone else to do it. It's just a matter of what their appetite is.

Other scores
Are those all the scores that are out there?

No. There are also insurance scores that predict the likelihood of you filing a claim, or predict the likelihood of you being a profitable insurance customer. Fair Isaac builds those and a company called ChoicePoint, which was just acquired by Lexis/Nexis. Those use information off of your credit report and also previous claim data. ChoicePoint actually houses a claim database. They'll use that data in addition to your credit data.

A look at risk scores

• Scores used in customer acquisition • Using the credit card • Negative cardholder behavior • Other scores • Customized scoring models • Consumer advice on scores

There's also something called an application score. A credit score takes information off your credit reports. An application score takes information off your application. In other words: How long have you lived at your current address? Do you have a checking or savings account? How long have you been on this job? How long have you been in the same industry? What's your salary? These are things that aren't on a credit report that you can get from a credit application. What's your debt-to-income ratio? What's the loan-to-value on the property? How much down payment are you putting? How much cash do you have in the bank as reserves? Those are all things that are on an application that you can score -- but not with a credit score.

A lot of application scores use a credit score as an input. Kind of like an insurance score, where it uses insurance data and credit data -- well, this would use application data and credit data. Lots and lots of the big banks use application scores because they are very, very powerful -- more powerful than just a credit score itself. The more external data you can bring in, the more powerful the scoring model is going to be.