The Secret Credit Scores Banks Don’t Want You to Know About
Last Updated – June 3, 2010

There is big business in credit cards and knowing who is a good credit card customer and who is not is imperative to the bank looking for new customers. There are companies that furnish this information to the banking industry to drum up business. Ever wonder why you receive certain types of direct mail credit card offers? Wonder why a credit card company suddenly decreases your credit limit despite your perfect payment history? With the advent of the computer, many types of sophisticated modeling is available to the banking industry. The whole point of these models is of course, to maximize profitability.

Some of these consumer scores may not specifically have been developed to aid banks in credit decisions, but they are certainly beneficial to the credit industry. We’re going to cover a few of the most common ones.

The following chart may help you to understand how some of these models are used by banks to “prune” unprofitable customers, and help increase revenue from profitable customers.

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Revenue Score

This score predicts how much money a company is likely to make from a specific customer, based on past behaviors and payment history. You’ve heard of the term “credit card deadbeat”? A credit card deadbeat is the insider term used by credit card company executives and refers to all of the credit card users who pay off their bill each month promptly; in doing so, such customers pay no interest and prevent the creditor from making any profit.

This score can lead to the ironic situation where a customer with a perfect paying history may find their credit cards cancelled or credit limits lowered. This is because the credit card companies are actually losing money on unprofitable clients.

Behavior Score

Behavior score is a decision-making customer prediction tool based on customer behavior and life-style.

This powerful tool plays an important role in banking, credit card, insurance, and telecommunication industries as it helps solving business issues, such as:

• Contractual credit loss
• Fraud
• Bankruptcy
• Customer attrition or churning
• Account management

With the capability of identifying which customers will turn ‘bad’ in the future, scoring models can develop proactive strategy to reduce the potential loss months before the customers actually become bad. On the ‘good’ customer group, different sets of action can be taken to improve the profitability and retain the customers.

Here’s a paper on behavior score modeling.

Response Model

Response model helps businesses to better understand and anticipate their customer needs, behavior patterns, and value. With response model, it is possible to design, test, and implement more effective strategies for acquiring, growing and serving customers. Some of the areas that can be addressed with a response model are:

• Product cross-sell and up-sell
• Direct mailing solicitation
• Activation/promotion program

Transaction Score

A transaction score is generated for each purchase you make, and is used to determine whether the transaction should be approved. (Or whether it might be fraudulent.) This score also factors in the risk of whether or not the customer is likely to return the purchase, or whether questions concerning an online purchase will deter the completion of the purchase.

Your transaction score is based on profile data. Examples of this data:

• Contain summaries of historical data that include prior customer transaction data.
• Number of times a customer returned a purchase.
• Whether or not the customer will complete the transaction
• Number of previous fraudulent transaction connected to the consumer.
• Probability based on the likelihood that a user customer will terminate the transaction if the user customer is presented with an online shopping cart follow-up question set.

Collection Score

There is no single credit-lending business which has no delinquent customers. The collection scoring system is based on customer’s past behaviors in both non-delinquent and delinquent states, the system is able to determine which of delinquent customers has higher chance of collectibility/recovery, who should get harsher treatment, what is the cost-effective medium to use, etc.

This score is beneficial to collection agencies who have large portfolios of debt. Why spend a bunch of time and money on accounts which are unlikely to be collected?

Application Score

Your application score contains secondary information not factored into your FICO® credit score. Examples of this type of information are:

• Your age
• Where you live
• Your ethnicity (oh yes – this is factored in).
• Your profession, and whether it is a blue-collar or white collar job.

Bankruptcy Score

Your bankruptcy score is just what it sounds like: a measure of how likely you are to declare bankruptcy.

Researchers say the score typically surfaces when a consumer gives the bank permission to pull his credit report during the application process for a new loan, bank card or credit card, and during the periodic review of clients’ accounts to determine whether to increase a consumer’s credit limit.

What goes into a bankruptcy score? Of course, developers of the model are not giving out too many details. However, there are some clues. For instance, where you live can change your bankruptcy risk score. An Experian study ranked the states with the highest propensity to have consumers file for bankruptcy within the next year. The top five are:

1. Texas
2. Nevada
3. New Mexico
4. Louisiana
5. Arizona

With all the foreclosures out there, I’m personally surprised that that Florida and California are not on the list.

Attrition Risk Score

An attrition-risk score measures how likely you are to close your account. Lenders use this in combination with other scores to decide whether a customer is worth retaining.

In addition, research has shown that retaining existing customers is more profitable than acquiring new customers due primarily to savings on acquisition costs, the higher volume of service consumption, and customer referrals.

Myrtle Beach Credit Repair – Jason Carr 843.839.8578
Today, more than ever, good credit is a must. Our economy demands that consumers have near perfect credit to buy a home, an auto or obtain any type of credit line. At times these requirements can seem unrealistic or unattainable. The staff at New South Financial is here to help you improve your credit rating and achieve your dreams.

Increase Your Credit Score – Here Are Some Quick Ways
Last Updated – June 2, 2010

There are plenty of ways you can increase your credit score in 30 days. If you are planning to buy a home or car soon, you will need to get your credit cleaned up so you can qualify for that low interest loan! With a little forsight and due diligence, you can reap giant rewards in the form of a lower mortgage or car payment by qualifying for better loan.

1. Pay down your credit cards – Paying off your installment loans may can help your score, but typically not as dramatically as paying down — or paying off — revolving accounts like credit cards. The FICO model and even (from what we understand) the Vantage scoring system now used by the Big 3 weight credit card debt more heavily. Each individual card as well as your total revolving line should be below 25%. If your goal is to increase your credit score – forget about paying down your high interest rate cards first. Work on getting those balances down over higher interest rates to reap the most improvement in credit score.
2. Don’t use your whole credit line every month – Your available credit is averaged over your billing cycle, which is sometimes less than 30 days. If your limit is say, $5,000 and you charge $5,000, even if you pay it off each month, your credit balance is still going to show $2,500 (a 50% usage limit), which is going to make your score plunge.For most small business owners, their credit cards are the way they purchase goods and supplies every month. If the card’s limits are used to the hilt – this can hurt. But wait you say, these are business cards. Yes, they are and most small business owners still have to personally guarantee their business cards, which means they show up on personal credit reports. If you need to use all of the available credit line on your cards, you may want to consider getting a new card to spread out the credit lines a little.
3. Is your credit report correctly reporting your credit limits for your cards? If not, you can call your credit card issuer and ask them to update the list. You can also challenge the limits with the credit bureaus.
4. Don’t use credit card issuers who don’t report your credit limit – Usually this is a problem you only run into with secured credit cards, but were you aware that American Express cards and Capital One do not report credit limits? In this case the bureaus typically use your highest balance as a proxy for your credit limit, which is going to make you look like you are maxed out.
5. Ask a trusted friend or family member to add you to one of their old cards as an authorized user – The older your credit history, the better. If your mother agrees to put you as an authorized user on a card that she; had for 20 years, you could see your score increase dramatically. And with the authorized user plan, you don’t even have to have the card in your possession if “Mom” feels better about this plan. (You’ll have to work things out with her on this).
6. Ask a creditor for forgiveness – If you’ve been a good customer for years, but had a rough patch and missed a payment – you might be able to ask your creditor to “erase” a negative listing. You can do this with a goodwill letter. There is no guarantee that a lender will do this, but this method has had lots of success. Here is a sample letter to help you do this.
7. Get student loan payments current – If you have a student loan that you have defaulted on or have missed payments, you can enter into a “rehab program” which will get your account back on track after 12 months (ok, so it’s not a short-term strategy.) Sallie Mae regularly upgrades your loan status to “Paid as Agreed” if you make a series of 12 or so on-time payments.
8. Dispute old negatives – Say your insurance company never paid a medical bill and now you have a collections account. You can continue protesting that the charge was unjust, or you can try disputing the account with the credit bureaus as “not mine.” The older and smaller a collection account, the more likely the collection agency won’t have bothered to update good ole eOscar with the correct info and the credit bureau won’t be able to match up computer records.
9. Get a collection agency to agree to remove a debt from your report if you pay it – This method is called “pay for delete” and it works like a charm on smaller amounts of $500 and under, especially medical collections. Remember to get the agreement in writing before you pay them anything, and only send a money order after you get them to agree. Check here for more info on settling debts.
10. Dispute with original creditor – Our patented method of disputing with original creditors really works, especially accounts which have been purchased by other banks or are currently with a bank who has gone through some of those massive mergers in the last 10 years. And you have the cases (more common than you think) where some banks just don’t keep good records at all. This method is relatively quick.
11. Target “easy” errors – Target the easy errors on your credit report that have a big bang for the buck.
    • Negatives that truly are not yours: Late payments, charge-offs, collections
    • Any Accounts listed anything other than “current” or “paid as agreed” if you paid on time and in full.
    • Accounts that are still listed as unpaid that were included in a bankruptcy.
    • Negative items older than seven years (10 in the case of bankruptcy) that should have automatically fallen off your report.
    • Any account that is listed as “Closed by the credit grantor” when it wasn’t should be fixed as this is definitely a negative

You will notice, the first 3 items target paying down credit balances. This is for a reason – high credit balances can kill the credit score of someone who otherwise has perfect credit. It is weighted HEAVILY in your credit score. Get those balances down!

Myrtle Beach Credit Repair – Jason Carr 843.839.8578
Today, more than ever, good credit is a must. Our economy demands that consumers have near perfect credit to buy a home, an auto or obtain any type of credit line. At times these requirements can seem unrealistic or unattainable. The staff at New South Financial is here to help you improve your credit rating and achieve your dreams.

Do you need a specialist in credit repair? Just Call 843.267.7354