Banks Using Own Credit Score Models


Banks Causing Confusion by Using Non-Traditional Credit Score Models

Aug, 24th 2016

If you are applying for a credit card or loan, make sure to ask the bank or credit card company what type of credit score models they use for evaluating your credit history. It could be the difference between an approval or a denial and a subsequent reduction in your credit score.

Banks are now hiring independent credit reporting agencies in lieu of the big three (Equifax, Experian, and TransUnion) and are using credit scoring models other than FICO and VantageScore to make decisions on your credit requests. These models can cause confusion and lead to application denials for no valid reason.

A recent Los Angeles Times article reported on an instance where a man with a very high FICO score was denied a credit card by Bank of America. They sent him a letter saying they used a credit score model called “Credit Optics” from a company called SageStream to rate his credit history. The Credit Optics model gave him a 374 out 999 score. For Bank of America, that was a low score, although the bank didn’t explain why in its letter, and therefore the application for the credit card was denied.

When the LA Times contacted the company for the article on behalf of the gentleman, the company said they use a 1 to 999 score range (versus FICO’s 300 to 850 range and VantageScore’s 501 to 990 range.) The SageStream representative also stated that a 374 in their model was a “pretty good score.”


Why The Credit Card Denial Then?

Well, no one will ever know but common sense would dictate that whoever saw the 374 number at Bank of America thought it was equivalent to 374 FICO score and decided to deny the credit based on that. Therefore, I suspect human error played a major role.

According to the LA Times article, Bank of America says they only use “supplemental scores” like the ones by Credit Optics "to take into account alternative information in making a credit decision" instead of just using a FICO score.

Apparently the reason for this has to do with the fact that most Millennials don’t use credit cards. Two thirds of Millennials don’t have one, according to the LA Times and as a result, some banks and many mortgage lenders rely on a new credit evaluation model known as “trended data,” which looks at the past 24 to 30 months of credit history to look for "trends" in the consumer’s credit report that could predict if the consumer will pay their debts or not. More information on this method can be found here.

SageStream, the company that gave the consumer the 374 score, does precisely that; they look at “nontraditional information” such as people’s mobile phone bills or internet provider bills and how consistently they pay them. Thus, SageStream is using a trended data model that looks for patterns that are clearly focused on Millennials.

Bank of America may not have known how to read SageStream’s scores and denied a credit card application to somebody who, by SageStream’s own admission, had “pretty good” credit.

Thus, if you are going to apply for a credit card or a loan from a bank, ask them first what kind of supplemental credit score models they use other than FICO and VantageScore and who provides the models. They may tell you they can’t disclose that information and if so, you should consider investigating other avenues of credit with a more transparent organization. You don’t want to risk getting your application denied which actually reduces your credit score.

FICO also has a trended data model called FICO XD. It leads one to wonder why Bank of America didn’t use that model instead of SageStream’s. Perhaps it’s because the FICO model is more expensive or maybe Bank of America has established a partnership with SageStream. Either way, not using a FICO-based model has clearly created confusion.

Side Note: The Business of Selling Your Data

One last item that should be addressed here is something else the LA Times article points out: SageStream is owned by a company called ID Analytics, which in turn is owned by a company called LifeLock. LifeLock, as you may know, sells identity-theft-protection services. That’s their main business and on the side they do credit reporting.

The LA Times asked SageStream if there was a possibility LifeLock was using SageStream as a lead generator to pitch identity protection services to potential customers. SageStream denied being involved in this practice and they should because it would be illegal.

Federal law (FCRA) allows credit reporting agencies to sell or share consumer information with anyone who wants to make a “valid credit offer” to those consumers. Thus, credit card companies and credit bureaus are free to sell each other consumer names, addresses, and other data in order to, among other things, send people pre-approved credit card offers in the mail. Credit reporting agencies are not allowed to give a third party’s credit report data to peddle things such as identity theft products and services.

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