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.