Wednesday, August 13, 2008

FICO Scorecards: Where do you Rank?

If I ever want to get my FICO score above 800, I'll need to lay off the applications. Additionally, I'll need more seasoning as well. Indeed, every time I apply for a new card, or do something that's different from those who score in the 800s, I reduce my chances of keeping up with that group. That's because Fair Isaac, the creator of the FICO score, has lumped each of us with the group that best fits our credit profile.

Ten scorecards are built into the classic FICO formula. If you have a bankruptcy on your report, you'll be placed with that group of consumers. If you have very little credit -- or a short history -- you'll be compared to people in that group. If you've recently opened a credit card account, you'll be placed with that group. If you've got a fairly lengthy history, and no blemishes, you'll be placed in yet another group. In short, we're all being compared to people who most resemble us. In other words, FICO is using an apples-to-apples comparison when it assesses our risk. In all, two of the scorecards are for those who have a derogatory mark on their credit report. The other eight scorecards are for those who do not have a negative mark.

As a third-year law student (link here), I'm quite familiar with this approach. We're all graded on a curve at my school. We have one exam -- per class -- each semester, and then our professors rank-order us from first to worst. Thus, let's say that I get 90 out of a possible 100 points on the torts final. However, if everyone else got scores that ranged from 95-99 points, I would be dead last in my class, despite the fact that I did really well on the exam (on a raw-score basis). The same thing happens in FICO scoring.

Although I am performing well in my credit life, I may not be doing quite as well as those in my class (scorecard). When I apply for a new credit card, and my score is in the neighborhood of 780, there's a strong likelihood that my score is going to take a good-sized hit when that new inquiry and new account appear on my credit report. That's because the rest of my peers (those who are in my scorecard) are not out shopping for new credit. On a relative basis, I've just made myself look a little less attractive (and FICO penalizes me for it).

Ever wonder why some people actually lose points when a bankruptcy falls off their credit reports? Intuitively, you'd think that these people should gain points. But that's not what often happens. Instead, when the bankruptcy falls off the report, the person is placed in a new scorecard. Now, instead of being compared to people who had a bankruptcy on their report, they're being compared to those who don't. All things being equal, they often look less attractive when compared to the new group. That's why it's so critical that people who go bankrupt try to reestablish credit as soon as possible. You don't want to have huge gaps in your credit history when that bankruptcy falls off the report -- and you move into a new segmentation group.

Similarly, I've seen people lose points on a day when absolutely nothing changed on their credit report. This often happens when someone's credit history gets lengthier. Instead of being scored with people who had relatively young histories, this person is now being scored against those with more seasoned ones. For illustrative purposes, look at this example that FICO cites for losing a few points on a day when there were no changes on the credit report:

"You moved from one category of credit users to another as time passed. For example, you may have transitioned from the category '"consumers with a new credit history"' to the category '"consumers with a two- to five-year credit history."' As a result, your credit report is evaluated differently, causing a slight change in your score. The good news is that moving between categories like this usually offers you the potential to reach a higher FICO score in the future."

In other words, this person was moved from one scorecard to another. Although this person may have scored well against those people with relatively new histories, this person doesn't score so favorably when he or she is thrown in with those who have 2- to 5-year histories. Such is life in the land of scorecards. To be sure, there is a silver lining in the scorecard change. The good news, as the FICO explanation pointed out, is that there is now more growth potential for this credit user -- despite the temporary score setback.

Which brings us back to me. I'll never escape the 770s -- and move into the 800s -- as long as I continue to apply (link here) for more credit. My high-FICO peers are applying for credit less frequently, their credit histories are more lengthy, and the average age of their portfolio is higher. In sum, I'm in a scorecard that rewards longevity, conservatism, and patience. Until I adopt those qualities, I'm going to remain stuck on the lower end of my group's scorecard.

Still, who am I kidding? If you read my column about high-FICO friends (link here), you already know that an 800 FICO score wouldn't last long with me. I'd be too eager to get that score out on the open road, scooping up opportunities that come my way. Given my penchant for using, rather than idling, my credit score, I guess I'll just have to live with my scorecard plight. At least for now.

In the meantime, if you happen to see me on the road, be sure to honk.

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Rob said...

This is a great entry on a topic I knew little about.

I had been meaning to ask you why your scores were (relatively) low and this explains it. Also explains why my score is rather high - being compared with people with limited history.

Credit Matters said...

Rob, there you go.

I really only care about having my scores above 760. Equifax and TransUnion are above 760. My Experian score is at 753. I'm missing a tradeline on Experian (a 10-year-old tradeline) and my Nordstrom account is listed as "revolving" instead of "open," which hurts my score a bit.

If I stopped applying for cards, I am sure that I could get to 800. It just takes time. Still, I'm perfectly content with 760+. It gives me everything I need.

Glad that you got something from this particular story, Rob.

Thanks for reading.

bird2006 said...

Wow! You did it again. I learned something else. This really explains reasons why the other half of credit repair is so important.

Credit Matters said...

Bird, thanks for reading. Tomorrow's column is on FICO High Achievers -- and their habits. Not sure if you'll learn anything new, but I hope it's still worthwhile for you.

Thanks for coming back each day.

Take care.

awedio said...

great breakdown on a "mystery" subject that I'm sure is a sore spot for a lot of peeps!

Is there a way to get a refresh of your reports/FICO scores?

On 8/5, I made a few changes (consolidations, CLI's) to Chase, Citi, Sears MC & HDepot. As of today, my reports don't show the updates. But, the BOA changes I made on the same day are on my report.

Credit Matters said...

No refresh available for FICO scores. You buy one and it's good that one time. The information does not get updated in the FICO score you pulled. If you want a new FICO score, with the newly updated information, you must pull a fresh FICO score.

lupoman said...

Thanks Marcus for another great article. I must admit, i had a very fuzzy understanding of scorecards. Thanks for putting it into perspective in an easy to understand way!

Kinda gives me something else to worry about lol! My scores are finally the highest they have ever been. But lets say when my accounts hit the 10 year mark (average age) might i be put on another scorecard and expect my scores to lower?

Is there an model to look at to know what exactly FICO's score cards are?

Credit Matters said...

Lupo, Fair Isaac has a firm rein on its scorecards. They're not going to reveal their formula.

That said, I imagine that you'll get more (or less) points when you reach certain milestones. If the average age of your credit is four years old -- while everyone else on your scorecard is at 6-12 years, you're likely being dinged.

If, however, you get your average age up to 13 years, maybe you'll pick up some points.

That's about as much as I can tell you. There isn't any information out there that lays out, with specificity, what goes into each scorecard.

awedio said...

Instead of FICO refresh, I meant to say, getting the 3 credit reports updated with new info.

Is there a quicker way to make this happen?

Credit Matters said...

I don't know of a way, Awedio. If you ever figure out a way, though, be sure to let me know!

Anonymous said...

This makes me curious if the score cards will be adjusted concerning foreclosures, limiting the high score of someone with a past forclosure less than it may have been limited in the past. In other words what was once a big deal will become not-so-big-deal.

Another nice article. Planning to write anything on spouses with differing credit/financial goals? I could use some insight

SpaghettiBender said...

This is a post I will have to save.
You finally unravel the mystery of how FICO works.
Right now my mean FICO is 715.
Looks like Im in trouble down the road. A BK will fall off in 09 and I only started rebuilding a year ago.


Credit Matters said...

Anon, that's a good story idea. Shoot me an email at Give me an example of what you're talking about.

Regarding the scorecards, I imagine they get tweaked often. I wouldn't be surprised if certain things have less impact on your scores. I doubt foreclosures will ever become prevalent enough to get discounted, though.

Thanks for reading.

Credit Matters said...

SB, the good news, though, is that your upside is greater not being in that BK bucket. So, there is always that to look forward to.

bloodbucket said...

what about rapid rescoring? I remember lenders advertising it to help you qualify by allowing you to tweak your score by paying off debts then rapid recore fico so you can get a better rate with less waiting. I thought it was a service FICO offered lenders,for a fee of course,where FairIsaac would then query banks CC corps etc for most current info so the information is updated sooner. ie fico says "please update this persons balance right now not later next month"~love fico they respond "sure we love fico,so here is the current balance for that person and we posted it to the CRA's too!"~ love creditor

sohowcome said...


Thank you for posting the information here, I feel this is one of your more educational AND unique blog entries that I have read on here. I would also like to thank you for your blog, it is a tremendous resource that should be read frequently.

-sohowcome (Zach) said...

Zach, thanks for posting, pal. Glad to see you at 3:40am. Haha. I'm seeing your post at 1am (my time).

Your post gives me an idea. I think on Friday I may post what I consider my ten most important pieces. Stories that I believe should be read by all.

Yeah. That's what I will do. Check back on Friday for my top-10 list.

I'm glad you liked this particular story. I had a good time writing it. Not sure if it's my most unique or educational (I haven't given it that much thought), but I'm happy that you think it's educational and unique. That's all that matters.

I hope to see you post more often, Zach.

Thanks for writing.

Timothyphx1 said...

I need to disagree on your thoughts on the score cards.
Current FICO models have only 2 negative score cards, FICO 08 will have 4.

Both have 8 Positive score cards and only a few are well known.

Public record or collection
Serious Derog (60 under 2 years and 90+ lates)
add'l ding for also having a PR or collection.

New to credit

Apping for credit (your Score card)

The other 6 are age based(oldest revolving, avg age, longest open, etc)

I actually have a 90 day late still reporting- as such I don't get hit when applying for credit- as I am stuck in a derog bucket. said...

Tim, I knew that. When I originally wrote that story I just inverted them. Thanks for pointing it out. I now have it so that two scorecards are for derogs. And eight for those who do not. I have it reversed.


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