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?
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.