Thursday, October 16, 2008

The Bankcard Industry Option FICO Score: What It Is and Why It Matters

So, earlier today I posted my new FICO score (link here) -- the one that Washington Mutual provides to its cardmembers. After several comments were made in response to the story, it became obvious that I didn't fully understand the score range that is available as part of this particular FICO score and I was vague as to what the score actually measured.

I have now done my homework. And I am ready to distill the information that I have learned. Plus, I think that a lot of people out there are kind of confused about this particular FICO score. By the way, many people refer to this score as PFICO (because the score was available to Providian card members; Providian was ultimately acquired by Washington Mutual).

This score, meanwhile, is being discontinued by WaMu, beginning March 1, 2009. Read the story here (link).

First, here is what Washington Mutual says about the score:

We display the Bankcard Industry Option FICO score. This score adjusts the Classic FICO score based on bankcard credit risk. The Classic FICO score measures a consumer's general credit risk; it is a tool that helps lenders predict how likely a consumer is to default on any credit obligation in the future. Large differences between the Classic FICO score and the Bankcard Industry Option FICO score indicate a consumer whose general credit risk is different than their bankcard credit risk.

Wamu also says that the score ranges from 250-900:

We display a credit card specific FICO score which can range between 250 and 900. This score adjusts the Classic FICO score based on bankcard credit risk. The Classic FICO score measures a consumer's general credit risk. Large differences between the Classic FICO score and the credit card specific FICO score indicate a consumer whose general credit risk is different than their bankcard credit risk.

After reading those two quotes, this is the upshot. The industry option FICO is another layer that is placed on top of the classic FICO score. It measures the risk of credit-card default, whereas the classic FICO score measures credit risk in general -- with no specific regard to credit cards.

While I understand that, more clarification is necessary. I went to Fair Isaac, the creator of that industry option FICO score, and found this on its Web site (link here):

An added layer of risk management for your portfolio

Most lenders acknowledge that consumers tend to regard and pay their loan obligations differently. So for your particular portfolio, getting deeper insight into the consumer's payment behavior can give you a great advantage in your risk prevention and management. Fair Isaac's Industry Option FICO scores are designed to give you that insight.

How and why they work

Available at all three major credit bureaus, the Industry Option FICO scores build on the predictiveness of classic FICO scores by incorporating additional credit information that is predictive for your specific industry-bankcard, auto lending, installment lending and finance company lending.

With the Industry Options, a credit file is first scored by the "broad-based" risk scorecard system, and then by one of two industry-specific overlay scorecards - one for files with derogatory information on any type of account, one for files without. This overlay adjusts the credit bureau scores up or down. The resulting score is scaled to match the same "good versus bad" odds as the broad-based risk scores.

The last paragraph is where the important information is. First, the credit file is scored by a broad-based scorecard system (classic FICO). But then, as with the Washington Mutual score, a second industry-specific overlay is placed on top of that. Those with clean files get a particular overlay and those with derogatory information get another overlay. Ultimately, the score is scaled -- after the overlay information has been factored in -- so that a lender can get an apples to apples comparison of the two scores (Bankcard Industry Option FICO score vs. the classic FICO score).

If my understanding is correct, someone with an excellent revolving history would get an added boost from the Bankcard Industry Option FICO score while someone with a negative history would be penalized a lot more. I'm also convinced that's why this particular Bankcard Industry Option FICO score ranges from 250-900. Someone with a perfect classic FICO score would max out at 850 (classic FICO scores range from 300 to 850). But someone with a perfect Bankcard Industry Option FICO could reach 900. Without the additional range, 250-900, there would be no utility in using this Bankcard Industry Option FICO score in tandem with classic FICO.

The bottom line is that the Bankcard Industry Option FICO score we get from Washington Mutual is dang useful. It's especially useful if you're going to be applying for a credit card anytime soon. I imagine that quite a few credit-card companies use this particular scoring model when assessing risk.

Now let's just hope that JPMorgan Chase doesn't get rid of this perk when it takes over Washington Mutual's credit card portfolio (once the merger between Chase and Wamu is fully integrated).

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Bob Wang said...

Just checked mine.
You are 10 points more the pimp than I ;-) said...

So you are now at 798. Where were you last month, BW?

Bob Wang said...

I guess I need to update my blog when the gory details are posted by WaMu.

Bob Wang said...

Speaking of which.
My OTHER blog only sees 1-2 visitors a day, IF THAT.
I was checking Google Analytics, and went, WHOA!
I guess 60 people found their way there by Googling the name of the blog ;-) said...

Bob, that's crazy. More and more people are finding my blog via Google now as well. You just needed some time.

By the way, paste your Web site address here. You need some company.

Bob Wang said...

I'm trying to stay under the Stryker radar ;-)
But, here's a screenshot of my traffic just for grins:

Montipora said...

Gratz Marcus. Quick question:

Is this WaMu Bankcard Fico the same as "PFico" scores that alot of people in the forums refer to? said...

Montipora, it sure is. From my story (near the top): "By the way, many people refer to this score as PFICO (because the score was available to Providian card members; Providian was ultimately acquired by Washington Mutual)."

Montipora said...

lol... I don't know how I missed that =) said...

Montipora, the story was so exciting that you probably just flew right by. LOL.

Thanks for reading, pal.

TheVibeRAIDER said...

Credit Matters,

Old news.

;-D said...

Not old news, pal. Just old news to you! Ha!

athensguy said...

I haven't seen info on your Discover Business approval yet! said...

I have a car purchase coming up, AG. Won't be making any moves until after that.

Sean said...

Marcus, Bob Wang:
What have you two noticed as to what affects PFICOs? I see Bob Wang posted the long-term view of his PFICOs on his blog and there's a 34 point spread over the past 12 months. What action/inactions correlated with these changes?

I've always thought there ought to be a way to reverse-engineer FICO scores if you could get enough data points. said...

Sean, my PFICO finally started moving higher when I laid off the applications. Low utilization didn't do much for PFICO. I'm convinced that PFICO is extremely sensitive to new card accounts.

My scores have ranged from 707-808 over the past 12 months. The score was lowest when I had new accounts popping up. Now that I have only had one new account in the past 14 months, PFICO is finally rewarding me. During the past year, my utilization has been 1%. And that 1% has been consistent.

My classic FICO scores, meanwhile, have been most sensitive to utilization. New accounts didn't impact the scores as much as they did on PFICO.

I'd be curious to see what Bob says.

Anonymous said...

a newbie posting here, I just checked my WAMU FICO score and it's a decent 765, yet another credit card company, Juniper (AKA BARCLAYS), tells me my score is 815 - why the difference, and do they mean the same thing?not quite sure how to add my name to this... said...

Anon, those scores are not the same thing.

Wamu uses the Bankcard Industry Option FICO. It's a true FICO score.

Juniper uses a fake score called the TransRisk score. Ignore it.

If you have a Google account, Anon, you can log in and use that name for posting. said...

By the way, that TransRisk score ranges from 100 to 900. Also, and you'll love this, I once got a reason code from TransRisk telling me that my score wasn't higher because I did not have an ADVERSE mark on my credit report. LOL.

So I should run out and get a 30-day late? Woot!

The point is, TransRisk is about as useless as they come. Just throw it in the trash bin with the rest of the fake scores.

Anonymous said...

Hope this is not going away too, I just found out about it and was able to access my Transunion based FICO score!.

"WaMu home equity line of credit customers can view their FICO® score for free online, updated monthly. This is the "classic" version of the FICO® score, with a range of 300 to 850. Fair Isaac also issues other types of FICO scores for other segments of the financial industry, such as credit card issuers. If you have access to other FICO scores you may see difference among them, even though they are all "FICO scores."" said...

My guess is that it's going away. Let me get an answer for you next week.

Bob Wang said...

Heh, heh, Googled myself and found this thread.
In reply to Sean back in October, the fluctuations in my PFICO are almost entirely due to application sprees, and then laying low. said...

Funny how you can find my site, eh, Bob?

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