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How credit scores are determined

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How credit scores are determined.

In June 2000, Fair, Isaac surrendered to increasing pressure from Congress and consumer groups and released a list of the criteria it uses to determine credit scores. In addition, the company plans to develop a web feature so you can check your own score.

The five main criteria are:

  • Your payment history payment history on credit cards, retail accounts at stores, installment loans, and mortgages. 35% of total score .
  • Amounts owed. What is important is how many accounts have balances and how much of the total credit line is being used on credit cards and other "revolving credit" accounts. 30% of total score.
  • Length of credit history. That’s why parents should help children establish credit histories before they go out on their own. 15% of total score.
  • New credit. Applying for too much new credit is one of the easiest ways for people to inadvertently harm their credit score. (10% of total score)
  • Types of credit. This takes into account your mix of installment loans, mortgages, retail accounts, credit cards and finance company accounts. (10% of total score)

The scores that companies like Fair, Isaac compile are sent to the credit reporting agencies as composite numbers. In addition to your salary and other factors mentioned above, here are some of the things that scoring agencies consider:

  • Your education level. It sounds arbitrary, but it’s true. A college-educated person is given more “points” than a high school graduate, for example.
  • The number of years you’ve lived in a single location. If you’ve moved around a lot, you lose precious points. If you’ve moved because of a better-paying job, you can recoup some of those points if your salary has increased, for example.
  • The number of years you’ve worked for a single employer. Scoring agencies like people who are stable. That’s why they assign more points to people who’ve lived in a particular place for several years or who’ve worked for a single employer for many years.
  • Are you a homeowner? If you are, you get additional points. Renters are considered more transient and less reliable to repay their loans.

If all of this sounds arbitrary or unfair, remember that scoring systems have allowed department stores and other lending agencies to offer those “on-the-spot” credit approvals. You know the routine. You fill out some basic information on a card and five minutes later (if the computer is working properly), you’re either approved or disapproved for a loan. Fair, Isaac is only part of the process. Once the company processes a score, it is then transmitted to the lender, which makes the ultimate decision on whether a credit application is approved or denied. Lenders insist that the scoring system does not unfairly hurt minorities, but simply reflects overall lending histories.

I hope this gives you a better understanding of the scoring process...:p

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"...Your credit report does not contain salary information, education level, or years at a particular address or employer..."

Actually, many consumer files (as defined by the FCRA) do contain this information. Many subscribers who pull CR's have sophisticated data capture screens that can be filled in with this info. It's not necessary to input it to get a CR, but they often don't know this and fill it all out. Any tidbit of data not already on your CR ends up there in the Personal Information portion.

Based on the article quoted by the OP, FICO based programs use this (often worthless) data when calculating the score.

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I've seen employer's name, position, salary, nicknames and spouse's name on infiles in addition to SS# variations, previous addresses. All the CRA's have a large repository of Personal Information.

Since this type of data is not technically 'reported' it doesn't get updated. That's why it's useless. I'm sure that FICO loves to factor it into scores, but it's often the most erroneous stuff in a file, IMO.

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Under the equal credit opportunity act, A Creditor may not consider your sex, marital status, race, national origin religion, whether you have a telephone listing in your name. A creditor may consider whether you have a phone. Creditors may not consider the race of people in the neighborhood where you want to buy, refinance or improve a house with borrowed money, and may not consider your age, unless:

o you’re too young to sign contracts, generally younger than 18 years of age;

o you’re 62 or older, and the creditor will favor you because of your age;

o it’s used to determine the meaning of other factors important to creditworthiness. For example, a creditor could use your age to determine if your income might drop because you’re about to retire;

o it’s used in a valid scoring system that favors applicants age 62 and older. A credit-scoring system assigns points to answers you provide to credit application questions. For example, your length of employment might be scored differently depending on your age.

When evaluating your income, a creditor may not refuse to consider public assistance income the same way as other income, may not discount income because of your sex or marital status. For example, a creditor cannot count a man’s salary at 100 percent and a woman’s at 75 percent. A creditor may not assume a woman of childbearing age will stop working to raise children. A creditor may not discount or refuse to consider income because it comes from part-time employment or pension, annuity, or retirement benefits programs.

A creditor cannot refuse to consider regular alimony, child support, or separate maintenance payments. A creditor may ask you to prove you have received this income consistently.

Since all of these factors cannot be considered, it would hardly be legal for a CRA to include them.

In addition, if you can prove that the CRA has this information and did not disclose it to you upon your request, they have also violated the FCRA.

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"..... In addition to your salary......"

Your salary has never been used nor will it be used by FICO or VantageScore to determine your rating. Scores are independent of salaries.

Although, lenders do in fact use salaries to determine credit lines.


Outsource congress.

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Then when you request a copy of your file, and they do not provide that, you can sue them for noncompliance.

Not all info the CRA has must be given to you in order to comply with the Act. There have been some recent decisions concerning this, the most recent of which is still under appeal. Remember the class action suit against TU concerning their omission of DOFD from reports?

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This started out with a quote about "How credit scores are determined", then progressed to data that CRA's have, then to the ECOA and the criteria that creditors use, and back to scores. It's important to note for clarity that these are separate, albetit related, topics.

Since the OP specifically refers to "...some of the things that scoring agencies consider..." in addition to the "...five MAIN criteria..." (quoted by CleverCynic), obviously scoring programs are aware of this data and MAY use it. Where would a scoring program get this info other than a consumer file?

"...Since...these factors cannot be considered, it would hardly be legal for a CRA to include..."

I don't follow your reasoning. CRA's are repositories of data. ECOA restrictions on the use of that data has no bearing on them. That law is aimed directly at creditors.

"Not all info the CRA has must be given to you in order to comply..."

I'm not a legal eagle like dive, but I've wondered if this is the loophole that allows them to skirt the FCRA requirement he referred to (ALL the info...).

I just know I've personally seen additional data on infiles that is not included in the standard 'report' format from the CRA's. I don't know how they get by not revealing DOFD and other items mentioned in this thread, but they do.

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1 Since FICO only grades you based on what is in your CR, they do not take salary into account. I am not saying that individual lenders do not take salary into account, I am saying FICO does not.

2 I admit to not knowing any case law on this one, but the FCRA plain language says: (emphasis added)

(a) Information on file; sources; report recipients. Every consumer reporting agency shall, upon request, and subject to 610(a)(1) [§ 1681h], clearly and accurately disclose to the consumer:

(1) All information in the consumer's file at the time of the request

How can "all information" mean anything other than "all information?"

How do they get away with what they do? Who knows? Sort of like the Pintos of a few years ago, it is cheaper to pay the settlements than it is to comply...

3 A CRA that has data in it that is plainly in violation of the ECOA would be foolishly leaving themselves open to suits for violating the Civil Rights of consumers, or for charges of racism from some whistleblower somewhere. That is a hot potato that no company is willing to handle, so secret or not, I don't see anyone being foolish enough to touch that one. The penalties for those sort of violations can be extremely high in today's legal climate.

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I understand with your point, dive. But clearly, not all the information in your CRA file is disclosed in their standard 'report' format. DOFD is a prime example. How do the CRA's get away with that, given the part of the FCRA you quoted? I dunno.

And I still contend that CRA's don't have to worry about ECOA. That's for credit grantors, not CRA's or scoring companies. The CRA's complied with ECOA by including account designations like J(oint), I(ndividual), C(osigned), etc.

"...take salary into account...FICO does not..."

Are you certain? Cuz, I'm thinking that they MAY, if the data is in there (it can be). I've read what the OP posted before. Not sure if it's from FICO, the FTC or one of the bureaus own publications. But I do know that they don't release stuff like that if it's total fiction. There is a basis for this conjecture. There's also people like me who have seen thousands of infiles...

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When I use to work at a Finance company, the only data we had to type into the machine was SS#, DOB, Employer Name.

When we would get others credit reports, the only thing we seen was the same thing that I see when I look at my own. The only difference was that it had a "risk factor" number on the application.

My manager told me once when I asked how come she will approve one person that has only 1 medical account but not approve someone that doesn't have any.

She told me that finance is based on a few things but mainly demographic area. If you were living in bascially a low income town, they had to relax credit rules. Higher level, higher rules.

Of course, this was 12 years ago.

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