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).