I received an interesting e-mail from KIA motors the other day. So far, the car has run fine, for all of 24,000 miles after five years. They put new wheels on it, under warranty. And I received a "Product Improvement Campaign" notice (which isn't a recall, right?) asking me to bring it in for a reprogramming of the engine software. Seems some folks have had connecting rod bearing damage (!!) and by reprogramming the engine computer (I suspect lowering the rev limiter) they can attenuate possible future damage. They also increased the warranty on the short block to ten years or 120,000 miles. I guess that is a good thing. We hardly beat on the car, so I suspect we won't have any problems.'
Anyway, they'd like to sell me a new car, of course, and linked me to their finance page which offered (among other things) a free credit score. Being curious and sensing new blog meat, I clicked on "YES" and it told me my score was 869. WTF? How do you go over 850 - the max FICO score?
Well, as I noted in another posting, there are a plethora of scores out there, even "Fair Issac" scores, and they have one for mortgages, one for credit cards, and one for auto loans. And the auto loan one inexplicably goes to 900 instead of 850. Why this is, I do not know. But it is weird. I think the whole deal with the "Fair Issac" score to begin with - going from 300 to 850 - was an attempt to argue that it was "intellectual property" - as if picking an arbitrary start and end point was, in itself, novel (Patent Attorney here: sorry, not buying it!). You can pick whatever scale you want, it can be scaled to 0-100 any day - which would make a helluva lot more sense.
(As you might have guessed, the FICO people did go after the "Vantage Score" people, arguing that the score range was protected intellectual property. From the sounds of it, the judge didn't buy it, either).
By the way, this wikipedia entry illustrates how the score is calculated - and again, how a lot of things that may increase your score could end up hurting you financially (at least potentially). For example, if you increase your credit limits, your "credit utilization" may go down, as a percentage of available credit. But on the other hand, having $50,000 in available credit on credit cards (BTDT!) is a pretty dangerous thing - if you run up debt on those cards. Pray tell, what would one ever want a $20,000 limit on a credit card with a 22% interest rate? It is financial Russian roulette!
Oh, wait, I can hear the answer already from the "card-savvy" readers. "If you make a big-ticket purchase, you can put it on the credit card, pay it off the next day, and get all those airline miles or cash-back points!" The problem with that argument is that most merchants aren't stupid. They know they will have to pay a percentage of the sale - often a hefty one - to the credit card company.
I ran into this with my business. A client wanted me to use his "miles rewards" card to pay a $5,000 legal bill - most of which was USPTO fees I had already paid. I ran the charge and was chagrined to see I was dinged nearly 5% on the sale by the card processor. I called to complain and they explained that these rewards cards charged a higher fee - so in effect, I was giving my client a 5% discount by using his credit card - which put a huge dent in my fees for the transaction.
So, if you go to the Lamborghini dealer and tell them you want to pay by credit card, they will say, "sure, why not?" and pad the price of the car by 5% or more - making the bank happy, but giving you back only 3% in rewards. You are not coming out ahead on these deals.
Another factor I mentioned before - age of accounts. If you have a very old open account, it helps your score. So if you got a department store card at age 18, and it is still open (but not used) that helps. But on the other hand, is it "smart" to have an open account laying around that you do not use? It seems to me to be a recipe for fraud. I guess I could have kept my Sears account from age 22 still open and have nearly 40 years of credit - but then again, by next month, I suspect that account too, would be closed anyway (I noticed the Sears online shopping site has gone dark - shades of the inevitable!).
But getting back to Fair Issac - why do they have so many different scores? I suspect the reason is to sell more product - to sell one set of scores to car dealers, another to mortgage lenders and brokers, and yet another to credit card companies - all at different price points based on what they are worth to the buyer. When you shop for a mortgage, you might only contact one or two lenders or a mortgage broker. That's a big-ticket loan with big-ticket fees - the scores are worth more to mortgage lenders than to other lenders.
For car loans? Maybe worth a little less - hence the different score. You might shop several car dealers, and the individual transactions are only in the tens, not hundreds of thousands of dollars. The credit score is worth less to a car dealer than a mortgage lender - or more precisely, the car dealer is only willing to pay so much.
Credit cards? People have multiples of them, and offers pour in the mail every day. So maybe the score is worth even less to credit card companies, who process tens of thousands of applications daily (hourly? who knows?). Anyway, that's my theory - a credit score for every purse and purpose - Alfred Sloan would be proud. You can buy a stripped-down Chevy credit score, or move up to a Buick credit score, or even a fully-loaded Cadillac credit score, depending on how much you, the lender, are willing to pay.
And my estimation that there are as many as 18 credit scores out there, based on the number of Fair Issac scores and credit bureaus, was a bit off - according to Wikipedia, there are as many as 60!
It is a fascinating business, if you think about it - quantifying the reputation and financial risk of an individual down to a single number.
But all that being said, it doesn't give a very good overall picture of the individual - only their recent payment history (for the last seven years or so). It isn't so go at detecting fraud (identity theft, fake identity) or the ability to repay (which is based on income, among other things). For example, if someone is 100 years old and has a excellent payment history, but no money in the bank and a limited income, are you going to make them a seven-year car loan? Odds are, they aren't going to live to pay it back - and you become a creditor of what may be an insolvent estate, once those Social Security checks stop coming. You have to look at the whole picture, I think.
And obsessing about your credit score is usually a sign your financial house is in trouble. If you want to borrow yet more money and your score is shot, think about not borrowing more money, and paying back what you owe, instead.
UPDATE: From the Capital One Site, this tidbit. The "Vantage" score always seems to be 25-50 points lower than the FICO score. I've scored a "perfect" 850 on FICO, but never on Vantage! Bastards.
- Your history of making payments on time
- The age of your credit accounts
- How much credit you are using
- Recent inquiries for credit
- Recently opened new credit or loan accounts
- How much credit you have available
