1© 2019 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Demystifying FICO® Scores
May 16th, 2019
Jerry St. VilDirector, Scores & [email protected]
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 student loans are bypassed by the FICO® Scores.
Getting married will merge credit reports with a consumer’s spouse.
A “hard inquiry” could lower your FICO® Scores.
Annual household income is part of the calculation of a FICO® Score.
Closing unused credit cards will improve a FICO® Score.
FICO® Scores will always be the same at all 3 credit bureaus.
Agenda
• Credit System Overview
• FICO® Score Overview
• What’s New in FICO® Scores
4
Credit System Overview - How It All Connects
5
FICO® Scores – Expertise
• FICO pioneered credit bureau scoring modeling technology
• FICO has partnered with all five major credit bureaus in the United States and Canada
• FICO Scores are available in 25 countries around the world
• Powers 10 billion+ decisions a year
6
Sample Credit Report
PERSONAL IDENTIFYING INFORMATION
I. Wishfor Credit
805 Main Street
Anytown, US 77777
12 Lost Lane
Somewhere, US 88888
Date of birth: 1-25-65
SSN: 999 99 9999
Sam’s Gas & Oil
Attendant
PUBLIC RECORD (LEGAL ITEMS)
9-14 Bankruptcy
COLLECTION ITEMS
7-12 Collection $500
TRADE LINE (ACCOUNT) INFORMATION
Industry Date Reported Date Opened High Credit Balance Status Historical Rating
Bankcard 6-18 3-05 $14,000 $2,300 Current 120+, 6 yrs ago
Auto Loan 6-18 8-14 $19,000 $9,000 Current
Retail 12-17 6-10 $1,200 $200 30 days
INQUIRIES
Date Industry Date Industry
6-1-18 Bank 6-1-17 Auto finance
6-15-17 Bank 2-7-17 Retail
“The Five Information Zones”
1
234
5
7© 2019 Fair Isaac Corporation. Confidential. 7
FICO® Score Definition
The FICO® Score is a summary of the information on a consumer’s credit file.
It is a single 3-digit number ranging from 300-850 which rank-orders consumers according to risk.
Higher scores equate to lower future risk of default.
8
620640
660
680
FICO® Scores are Designed to Rank-Order Risk
• A FICO® Score is:─ A number from 300-850*─ Based on the information in the consumer’s credit file─ Rank-ordering consumer risk
* FICO® Industry Scores have a broader score range
9
Example: Partial FICO® Score Model (Not Actual FICO® Score Numbers)
Category Characteristic Attributes Points Category Characteristic Attributes Points
Payment History
Number of months since
the mostrecent serious delinquency
No serious delinquency
0 – 5
6 – 11
12 – 23
24+
75
10
15
25
55
Pursuit of New Credit
Number of inquiries
in last 6 mos.
0
1
2
3
4+
70
60
45
25
20
Outstanding Debt
Overall utilization
on revolving trades
No revolving trades
0
1 – 6
7 – 19
20 – 49
50 – 89
90 or more
30
55
65
50
45
25
15
Credit MixNumber of bankcard trade lines
0
1
2
3
4+
15
25
55
60
50
Credit History Length
Number of months in file
Below 12
12 – 23
24 – 47
48 or more
12
35
60
75
10
• 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
5.
Credit Mix
10%
24
Minimum Scoring Criteria—U.S. FICO® Score
• Not deceased
• One trade line open at least 6 months
• One trade line updated in last 6 months
How does one get a FICO® Score?
25
Where Can You Get Your FICO® Scores?
https://ficoscore.com/where-to-get-fico-scores/https://www.myfico.com/
26
What’s New in FICO® Scores - UltraFICO™
www.Ultrafico.com
27
What’s New in FICO® Scores - UltraFICO™ (cont.)
28
Important Credit Information to Know
• 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
29© 2019 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Thank You
Jerry St. VilDirector, Scores & [email protected]
Top Related