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Ways to improve credit scoring

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Anonymous
Not applicable

Ways to improve credit scoring

1) real time data. Why wait a month for updates. With modern technology, credit reports and scores should update immediately. This will cut down on "credit kiters", similar to check liters, they are the ones that BT from one card the day after stmt cut to payoff a card before its stmt date. They then apply for new credit and both cards show $0 balance when in reality there is a balance.

2) credit scores should factor in available assets. Why should someone credit score drop because they take advantage of 0% BT when they have substantial liquid assets to repay the line at any time. This is another flaw in credit scoring process.make it optional. By tying investment /bank accounts to credit score reporting algorithm to improve score for realtime liquid assets. Again the technology is already there, and would provide much stronger data and reliance for scoring model and lenders (they get approx estimate of liquid asset range, not exact account data).

3) there is a battle between consumer and card issuer. Card companies want you to use their line, but they also want you to carry less than 10% util for best credit scores. So I need $100k of credit to use $10k on my card. Assuming I have a 25 year perfect record not even 1 late pay, why should my score drop 100 pts because I temporarily run a higher UTIL, and have funds to payoff in full once 0% rate goes away?

4) factor types of credit. Charge cards get paid in full each month, revolvers have 0% financing which is advantageous to the consumer, so why are charge card and 0% rate balances deemed same risk as someone who cant repay and carrying balances at 20%+?

Ok, just my 2 cents on ways to improve scoring. Just because it made sense 30 years ago, doesnt mean it's still the best model today. Strive for better!!
Message 1 of 16
15 REPLIES 15
SouthJamaica
Mega Contributor

Re: Ways to improve credit scoring


@Anonymous wrote:
1) real time data. Why wait a month for updates. With modern technology, credit reports and scores should update immediately. This will cut down on "credit kiters", similar to check liters, they are the ones that BT from one card the day after stmt cut to payoff a card before its stmt date. They then apply for new credit and both cards show $0 balance when in reality there is a balance.

the banks, who are the primary customers, do have access to real time data




2) credit scores should factor in available assets. Why should someone credit score drop because they take advantage of 0% BT when they have substantial liquid assets to repay the line at any time. This is another flaw in credit scoring process.make it optional. By tying investment /bank accounts to credit score reporting algorithm to improve score for realtime liquid assets. Again the technology is already there, and would provide much stronger data and reliance for scoring model and lenders (they get approx estimate of liquid asset range, not exact account data).

available assets are not verifiable, it would just be a number the consumer picks out of the air

also it's not a great predictor of timely payment.  lots of people have money available but aren't good about paying bills on time. some of the wealthiest people in our country got that way by stiffing creditors

3) there is a battle between consumer and card issuer. Card companies want you to use their line, but they also want you to carry less than 10% util for best credit scores. So I need $100k of credit to use $10k on my card. Assuming I have a 25 year perfect record not even 1 late pay, why should my score drop 100 pts because I temporarily run a higher UTIL, and have funds to payoff in full once 0% rate goes away?

no one with as strong a profile as that would lose 100 points for a temporary increase in one card's utilization

also there's no way of knowing if someone is maxing out a card for a clever reason such as 0% interest, or for the reason that they're under stress of some kind

4) factor types of credit. Charge cards get paid in full each month, revolvers have 0% financing which is advantageous to the consumer, so why are charge card and 0% rate balances deemed same risk as someone who cant repay and carrying balances at 20%+?

there's no way of knowing, as mentioned above

Ok, just my 2 cents on ways to improve scoring. Just because it made sense 30 years ago, doesnt mean it's still the best model today. Strive for better!!

 


Total revolving limits 657200 (536700 reporting) FICO 8: EQ 712 TU 710 EX 708

Message 2 of 16
Anonymous
Not applicable

Re: Ways to improve credit scoring

@SouthJamaica. Agree to disagree. There are plenty of tech options to get realtime data that verify current balance in accounts. Credit scoring could use this existing tech.

I guarantee someone with an otherwise perfect credit history, but decides to take out 0% cards and gets over 40% UTIL will see score drop from 800+ to low 700s ( that was my experience).

Too much weighting is put on UTIL (iMHO)
Message 3 of 16
Anonymous
Not applicable

Re: Ways to improve credit scoring


@Anonymous wrote:
@SouthJamaica. Agree to disagree. There are plenty of tech options to get realtime data that verify current balance in accounts. Credit scoring could use this existing tech.

I guarantee someone with an otherwise perfect credit history, but decides to take out 0% cards and gets over 40% UTIL will see score drop from 800+ to low 700s ( that was my experience).

Too much weighting is put on UTIL (iMHO)

I'm not sure where you're getting these numbers from, other than your "experience" but if that's the case your profile isn't like most.

 

Someone going from ideal overall utilization to 40% overall utilization will be crossing 2 thresholds, something that may on average impact a file 30-40 points.  Definitely not 100.  And, that's talking aggregate utilization, where if you're talking a BT and/or 0% offer typically that's on one account and doesn't impact aggregate utilization all too much if you have a handful of cards. 

 

In order to see a 100 point FICO score shift, one typically has to go from ideal overall utilization to maxed out utilization or vice versa. 

Message 4 of 16
flan
Regular Contributor

Re: Ways to improve credit scoring


@Anonymous wrote:

Ok, just my 2 cents on ways to improve scoring. Just because it made sense 30 years ago, doesnt mean it's still the best model today. Strive for better!!

Institutions lending more than trivial sums of money rely on a lot more than just a credit score.  They did 30 years ago.  They still do, and are more sophisticated about it than they were. 

Message 5 of 16
Revelate
Moderator Emeritus

Re: Ways to improve credit scoring

It’s just analysis of aggregate data, of course it breaks down for individuals.

Most people who max out all their credit cards do indeed present a higher risk of default. I don’t even understand how that is debateable.

Finally Amex charge cards do not have the same risk factor: that is why they are not included in revolving utilization calculations for every model FICO 04 and above, which is to say the last decade and a half.



        
Message 6 of 16
HeavenOhio
Senior Contributor

Re: Ways to improve credit scoring

I think the big way scoring can be improved would be to use trended data. With that information, utilization could probably be de-emphasised.

 

Otherwise, I think ways scoring can be improved involve minutia. For instance, penalizing for the dreaded consumer finance account appears to be dated.

Message 7 of 16
sjt
Senior Contributor

Re: Ways to improve credit scoring


@Anonymous wrote:
1) real time data. Why wait a month for updates. With modern technology, credit reports and scores should update immediately. This will cut down on "credit kiters", similar to check liters, they are the ones that BT from one card the day after stmt cut to payoff a card before its stmt date. They then apply for new credit and both cards show $0 balance when in reality there is a balance.

2) credit scores should factor in available assets. Why should someone credit score drop because they take advantage of 0% BT when they have substantial liquid assets to repay the line at any time. This is another flaw in credit scoring process.make it optional. By tying investment /bank accounts to credit score reporting algorithm to improve score for realtime liquid assets. Again the technology is already there, and would provide much stronger data and reliance for scoring model and lenders (they get approx estimate of liquid asset range, not exact account data).

3) there is a battle between consumer and card issuer. Card companies want you to use their line, but they also want you to carry less than 10% util for best credit scores. So I need $100k of credit to use $10k on my card. Assuming I have a 25 year perfect record not even 1 late pay, why should my score drop 100 pts because I temporarily run a higher UTIL, and have funds to payoff in full once 0% rate goes away?

4) factor types of credit. Charge cards get paid in full each month, revolvers have 0% financing which is advantageous to the consumer, so why are charge card and 0% rate balances deemed same risk as someone who cant repay and carrying balances at 20%+?

Ok, just my 2 cents on ways to improve scoring. Just because it made sense 30 years ago, doesnt mean it's still the best model today. Strive for better!!

I disagree with #2.

 

I think credit scores should take into account the payment amount you pay each month relation to you balance.

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FICO 08: Score decrease between 26-41 points after auto payoff (11.01.21) FICO as of 5.23, EX: 812 / EQ: 825 / TU: 815
Message 8 of 16
Anonymous
Not applicable

Re: Ways to improve credit scoring


@sjt wrote:

I think credit scores should take into account the payment amount you pay each month relation to you balance.


Right, which is sort of an indirect way of suggesting the use of trended data.  Many of us agree that this would be a good thing.

Message 9 of 16
HeavenOhio
Senior Contributor

Re: Ways to improve credit scoring

Being able to use trended data would cover a lot of ground. In addition to knowing exactly how much a card is used, it's possible to tell if one is:

  • paying in full by the due date
  • using the card and paying before the statement cuts
  • revolving a balance and making substantial progress in paying it down
  • revolving a balance and paying at or near the minimum
  • revolving a balance that's getting larger over time

The three credit reports have the spots for payments made, but most banks don't report that information. If reported, Equifax and Experian will keep the information for 24 months. Transunion keeps it for 30 months.

Message 10 of 16
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