Demystifying FICO Scores - University Of Maryland · 2 FICO®Score Quiz True False Missing a few payments now and then is ok and won’t have much impact on your FICO® Scores. Deferred
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• Models at each bureau are redeveloped periodically to enhance and improve the predictive power of the score
• A lender chooses the version to use
Product
FICO® Base Score
• FICO® Score 9
• FICO® Score 8
• FICO® Score 5
• FICO® Score 4
• FICO® Score 9
• FICO® Score 8
• FICO® Score 4
• FICO® Score 98
• FICO® Score 9
• FICO® Score 8
• FICO® Score 3
• FICO® Score 2
FICO® Industry Scores(For each version)
• FICO® Auto Score
• FICO® Bankcard Score
• FICO® Auto Score
• FICO® Bankcard Score
• FICO® Auto Score
• FICO® Bankcard Score
Multiple FICO® Score Versions in Use in the U.S.
11
Five Categories of FICO® Score Predictive Characteristics
1. Payment History 35%
5. CreditMix 10%
4. Pursuit of
New Credit
10%3.
Credit History Length 15%
1. Payment History
35%
5. CreditMix 10%4.
Pursuit ofNew Credit
10%
3. Credit History
Length 15%
2. Outstanding
Debt30%
12
1. Payment History
Key Factors
• How recent is the most recent delinquency, collection or public record item?
• How severe was the worst delinquency—30 days, 90 days?
• How many credit obligations have been delinquent?
1. Payment History 35%
13
Payment History
Example
Months Since Most Recent Major Delinquency
High
Low0–11 24–35 36–47 48–High No Delq
Ris
k
12–23
14
2. Outstanding Debt
Key Factors
• How much does the consumer owe creditors?
• What percentage of available credit card limits is the consumer using?
• What percentage is outstanding on open installment loans? 2.
Outstanding Debt
30%
15
Outstanding Debt
Example
0-19% 40-59% 60-79% 80-99% 100+%20-39%
High
Low
Ratio of Total Balances to Total Limits on Revolving Accounts
Ris
k
16
3. Credit History Length
Key Factors
• How long have accounts been established—average number of months accounts have been open
• New accounts—number of months since most recent account opening
3.
Credit History
Length
15%
17
Amount of Credit History
Example
0–23 24–47 48–71 72–119 120+
High
Low
Ris
k
Number of Months SinceOldest Revolving Account Opening
18
4. Pursuit of New Credit
Key Factors
• Inquiries: Number of recent credit inquiries (12 months)
• New accounts—number of trade lines opened in last year
4.
Pursuit of
New Credit
10%
19
2 3 4–High0 1
Young/Thin files Mature/Thick filesHigh
Low
Ris
k
Number of Inquiries
Pursuit of New Credit
Example
20
Types of Inquiries
• FICO® Scores only consider consumer-initiated inquiries for credit posted in the last 12 months
• FICO® Scores do not consider the following inquiries:─ Promotional inquiries─ Account review inquiries─ Consumer disclosure inquiries─ Insurance inquiries─ Employment inquiries
21
Inquiry De-Dupe Logic
• The FICO® Score models observe inquiries over a 12-month period.
• Auto- and mortgage-related inquiries that occur 30 days prior to scoring have no effect on the score. Outside this 30-day period, auto- and mortgage-related inquiries that occur within any 45-day period are treated as a single inquiry.
* * *
45 day de-dupe
* *
30 day buffer
12 Months Scoring Date
22
Inquiry De-Dupe & Buffer Period
Type # of Days Prior to Scoring Date
Auto 8Not Counted
(Ignore within 30
days)
Auto 9
Auto 17
Mortgage 35
Counted as 1 Inquiry
(De-dupe within 45
days)
Mortgage 47
Mortgage 56
Mortgage 79
Dept. Store 90 Counted as 1 Inquiry
23
5. Credit Mix
Key Factors
• What is the mix of credit product types?
• Revolving credit—number of bankcard trade lines
• Installment credit—percent of trade lines that are installment loans
• All US consumers have the right to access their credit report (from each national CRA) annually at no charge (www.annualcreditreport.com)
• All consumers have the legal right to dispute information they believe to be inaccurately reported. The CRAs have up to 30 days to investigate and resolve the dispute.
• Negative information (late payments, collection items, etc.) must be purged from the credit report after 7 years
• A poor credit history will not haunt one forever (the score is dynamic)
• Lenders may leverage other information (in addition to credit scores) to make credit granting decisions
• Protecting your consumer identity is very important as it represents your “financial fingerprint”
• A higher FICO® Score can translate into substantial $$ savings