750 = 850; Should it in your opinion?

[Washin17]

Where did you get all the charts and data? It’s very informative.

[Anonymous]

Personally speaking, I feel a person with a 850 credit score should have an edge over a person having a 750 credit score. Otherwise, why should I have the drive to touch the 850 mark? I should get some added benefits. Longevity is again important. I agree with BrutalBodyShots completely. My dad’s credit score is 700 and mine is 750. But my point is, he has maintained all his credit cards and other loans for such a long time. My credit history is nothing in comparison to my dad. Shouldn’t he get an edge over me?

[arkane]

Well, do companies promote people based on seniority or merit?

A long history still does no good unless it's (nearly) spotless. And I think it's been pretty established that it's practically impossible to even get near 850 without something like 7.5 years AAoA, so I think longevity has been baked into the formula already. 

[Anonymous]

My opinion is it all primarily comes down to risk vs profit. Risk is not the only factor which is where I think your mind is being stuck at.

The 800+ crowd is not as profitable as the 750-800 crowd when it comes to credit cards. They are less likely to carry balances and such. This is also why the lenders will take risks on lower credit scores. It is more likely the 700ish crowd will bring more profits at a higher risk. Different lenders and cards have different "prime" scores to base the decision on.

On a large loan like home mortgage the credit score is only a piece of the pie. Other factors will be considered which include that longetivity.

Also, consider Person A and B with a 750 score. Person A has 7 years AAoA and that is really helping their score (bonus!). I bet that person has some other issue holding the score down such as high revolving debt or a late payment. That AAoA is buffering them from dropping under excellent. Person B has 2 years AAoA. They likely have a fairly spotless report with low utilization. They have to keep their report that much cleaner to maintain such a high score. Person C has an 820 due to long history + clean report. Well person C is not likely to be "as profitable" as person A or B. However, they are a slightly lower risk. Balancing all works out to suggest after hitting "excellent" tier on score everyone falls into similar end profits for the lender.

It all makes sense to me.

[Anonymous]

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Well, do companies promote people based on seniority or merit?

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On merit, but seniority is going to be weighed in on to some degree.

If you have 2 people working for a company, one with a spotless record for 20 years and the other has only been there for 1.5 years with a spotless record, the vast difference in familiarity with the individuals will of course be a factor.  Longevity counts for something.  Whether that is 5%, 50% or some other artibrary/intangible value depends on the person making that consideration.

[arkane]

Sure and I don't think I dismissed longevity entirely. Simply saying that while longevity counts for something, by itself it shouldn't count for too much, since you have to consider how responsible they were with their credit. 

[Anonymous]

Right.  I'm operating on an "all other things being equal" assumption here.  So, two people with 1% utilization, flawless payment history, etc.  The one with 1.5 years of credit history verses the one with 20 years of credit history could be the difference between a 750 and an 850 score.  In terms of being able to obtain the best products, both are likely candidates.  I just find it strange that this 100 point variance between 750 and 850 is far less meaningful and potentially irrelevant relative to the variance between say 650 and 750 or 550 and 650.  Something overall just feels off to me, that's all.

[arkane]

If you look at one of the screenshots Thomas posted, you can see that default risk drops significantly going from 550 to 650 (51% to 14%), but experiences significant diminishing returns going from 650 to 750 (14% to 5%), and then 750 to 850 (5% to 1%).

I suspect this at least in part explains why after a certain point, your score no longer affects the rates.

[iv]

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@Anonymouswrote:

Right.  I'm operating on an "all other things being equal" assumption here.  So, two people with 1% utilization, flawless payment history, etc.  The one with 1.5 years of credit history verses the one with 20 years of credit history could be the difference between a 750 and an 850 score.  In terms of being able to obtain the best products, both are likely candidates.  I just find it strange that this 100 point variance between 750 and 850 is far less meaningful and potentially irrelevant relative to the variance between say 650 and 750 or 550 and 650.  Something overall just feels off to me, that's all.

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I assume at the other end of the scale it's much the same - does a 450 vs a 350 really make much of a difference in credit options/rates?

As with many scoring methods (not just credit scoring), anything above the bottom edge of the "A" range or below the top edge of the "F" range ends up grouped together in "very good" and "very bad" pools in practical use.

So the scoring is more granular than actually used. Does that matter?

Does a lender need to break out the 1%-default 801-850 group from the 2%-default 750-800 group?

Could a fintech startup offer sliding-rate APRs based point-for-point directly on scores?

Something like "every extra point gives a 0.05% APR difference from 30% APR at FICO 300 down to 2.5% APR at FICO 850" (might need a floor at 575 and 0.1% steps instead... which brings us right back to large groups of score ranges!)

Might make an interesting gimmick.  Maybe enough to get some VC cash, probably not enough to IPO.

But it doesn't seem useful, and the standard "bands/tiers" that are frequently used to group rates seem more predictable and useful to both lenders and borrowers.

[Anonymous]

Not all default risk at any given score is created equally.  Someone with 1.5 years of total credit history can have a 750 score where someone with 10 years of total credit history can possess the same score.  I know I keep going back to the 1.5 year 750 score person verses the 20 year 850 score person, but there's no way that there's a 4% variance between default risk of these two individuals.  Maybe on paper someone could come up with something that says that, but there's no realistic way to know based on such limited credit history if a 20-21 year old that's still in college is of equal [relative] risk as a 40 year old with thick/spotless file.

Maybe my gripe is against the ability to achieve a top notch score so quick out of the gate.  If it takes around 15 years to get to an 850 (for example), should it really only take a year or 1.5 years to get to 750?  Wouldn't it make more sense on a timeline sense for it to take something like 5-7 years to get there?  I'm not saying this is the solution or anything, but again something just doesn't make sense to me when considering credit scores relative to overall profile strength at times.