Date: Fri, 15 Apr 2005 09:56:07 -0700
Reply-To: "Choate, Paul@DDS" <pchoate@DDS.CA.GOV>
Sender: "SAS(r) Discussion" <SAS-L@LISTSERV.UGA.EDU>
From: "Choate, Paul@DDS" <pchoate@DDS.CA.GOV>
Subject: Re: Question about FICO credit score
A Model of You
Scoring models like the one developed by Fair, Isaac have always been
shrouded in mystery, especially when it comes to specifics. Generally
speaking, though, they utilize your credit history, income, outstanding debt
and debt utilization over the years, access to credit, and other indicators
of your financial behavior to determine how likely you are to pay your bills
on time, or if at all.
A numerical score is then developed, typically ranging from 300 to 850, with
the low end of the scale indicating a poor credit risk. This can tell a
lender whether or not he'll lend to you. For example, a credit score of 620
is frequently cited as a "cutoff point" for loans which can be funded by
Fannie Mae or Freddie Mac. Below that, and you're usually off into the
private "sub-prime" market, where rates are higher.
What's in your score?
According to Fair, Isaac, the breakdown of your FICO score is as follows:
35% of the score is determined by payment histories on your credit accounts,
with recent history weighted a bit more heavily than the distant past;
30% is based upon the amount of debt you have outstanding with all
15% is produced on the basis of how long you've been a credit user (a longer
history is better if you've always made timely payments);
10% is comprised of very recent history, based on your efforts to obtain
loans or credit lines in the past few months;
10% is calculated from the mix of credit you hold, including installment
loans (like car loans), leases, mortgages, credit cards, etc.
Other models being employed are sure to utilize these in various weightings,
plus other data that may be fed in to the model. These might include your
address or zip code, how often you've moved and other public and private
information about you.
What It Means
So, now you've got a score. Why should you care? Increasingly, lenders are
trying to fund loans with prices (rates, fees and terms) that more precisely
match your risk. In theory, someone with a 850 score should get much better
rates than someone with a 650 score.
So far, though, it hasn't exactly worked that way, at least not that
precisely. There are several grades of credit which have arisen, most
notably below the 620 line (A-, B, C, D). But above the 620 line, everyone
pretty much pays the same. Lenders can penalize you for poorly managing
credit, but don't much reward you for effectively and wisely managing your
debt, at least so far.
DDS Data Extraction
From: SAS(r) Discussion [mailto:SAS-L@LISTSERV.UGA.EDU] On Behalf Of Hari
Sent: Friday, April 15, 2005 9:22 AM
Subject: Question about FICO credit score
This is not strictly a SAS question. I was curious to know about the
credit score rating system. Noramally, the Credit score ranges from 300 to
850 as showed by most credit card companies and i knew that they use SAS
for analyzing business data. Can somebody tell me on what critical factors
they consider for deciding the credit score rating pattern and what
statistical analysis they use to achieve the credit score rating.
Any suggestions are welcome,