Senior Contributor
Posts: 3,240
Registered: ‎04-03-2008
Re: Experian roles out new credit score
Hmm, several unrelated thoughts
 
First, my interest in FICO scoring began from intellectual interest in the statistical data mining algorithms used. I work in pharmaceutical R&D, where we use similar statistical tools. Google Framingham Risk Score for an example of a medical scoring model that predicts who is at greatest risk of having a heart attack for instance. One of my data mining textbooks says the borderline between subprime credit and the lower end of good credit is where lenders expend special effort towards finding better ways to rank customers by risk. The borderline customer can be very profitable or very costly, so a lender who can find ways of approving more applicants without increasing risk can make a lot of money. Put another way, if a lender figures out a better way to tell an 810 applicant from a 780 customer that's hardly gonna make much difference because at that range of FICO scores profitability will be dominated by factors other than credit scores anyway. Therefore much innovation both good and bad takes place on the borderline between subprime and low prime credit.
 
Second, about 30 years ago the US Supreme Court made a very important decision: that States could not enforce their usury laws to restrict interest rates charged to their residents by out-of-state lenders. A couple states promptly eliminated their interest rate caps in order to get banks to set up shop there and thus provide jobs -- which is why if you still pay by paper checks the mailing address will usually be in the Great Plains. This decision enabled lots of financial innovation, some it probably good ideas and some perhaps less good. Before this decision subprime lending basically meant loan sharks who used collection methods not available to legal businesses.
 
Third, there is considerable political interest in finding ways to improve financial services to those who are known in the industry as "underbanked," people who use check cashing places, prepaid debit cards, and payday lenders. Many people with limited incomes pay much more to use what money they have than do people with stronger finances. A major difficulty with helping these people get better access to banking services is their lack of conventional credit history. So there is significant public policy interest in finding new sources of data to improve credit decisions for those with thin files. Whatever happens in this area, I doubt it will have much effect on how lending decisions are made for people who do have thick conventional credit histories, for whom existing tools work quite well.
TU 791 02/11/2013, EQ 800 1/29/2011 , EX Plus FAKO 812, EX Vantage Score 955 3/19/2010 wife's EQ 9/23/2009 803
EX always was my highest when we could pull all three
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