Here’s a “Did you know” from the “Wow, I didn’t know that” column: A poor credit score can lower your credit score. That may not make any sense, but it’s very common for custom developed credit scoring models to use a generic credit bureau risk score, like the VantageScore credit score, as an input. The custom credit score calculation is based, in part, on the generic score. That means, of course, that a low generic score can bring down your custom score as well.
Why would a lender use a credit bureau-based credit score within a custom-built scoring model?
Unlike generic credit scoring models such as the VantageScore model, custom credit scoring models can consider information that is not on a traditional consumer credit report. This typically includes information from the consumer’s credit application, such as income, presence of a savings account and net worth.
Custom credit scoring models commonly use credit bureau risk scores as inputs because it saves time and money in the custom model’s development. If a generic credit score is used as a model input, there is no need for the custom model to evaluate factors such as payment history, inquiries, delinquencies and other credit-management practices because the generic credit score already considers those variables.
The practice of using a generic score within a customized model is extremely common. In fact, most sophisticated lenders use many custom scoring models that incorporate credit bureau-based risk scores as inputs. The merging of credit bureau scores and credit-application data often yields a more powerful risk assessment tool and, of course, that’s what lenders are seeking.
The takeaway for consumers is that their credit scores are even more influential than they may think. Having a credit report void of negative information and excessive credit card debt leads to higher credit bureau scores and higher custom credit scores as a result.