By Tom QuinnWhile consumers have gained a greater understanding in recent years of how credit bureau scores are generated and how lenders use them to evaluate credit requests, some might be surprised to hear that these aren’t the only scores lenders use.
When making a decision whether to grant credit–from credit cards to auto loans to mortgages–lenders leverage many different types of predictive scores. These other scores may be designed to predict different types of outcomes (such as a person’s likelihood to respond to a pre-approved credit offer) and may incorporate other types of data in addition to credit bureau information (information provided on the credit application, for example).
One such predictive score commonly used by lenders is the custom application score. Custom application scores are very similar to credit bureau scores in that they are designed to assess the risk posed by a particular consumer (the likelihood that he or she will pay a credit obligation as agreed). The key difference is that while credit bureau scores are focused on predicting general risk (whether a person will become delinquent on any credit obligation), custom application scores are specialised, designed to accommodate a lender’s customer base and predict whether an applicant will pay as agreed on that lender’s particular loan or line.
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Custom application scores usually include an evaluation of the applicant’s credit bureau data, but may consider other data as well. This could include information provided on the credit application (length of employment time, income, debt to income ratios, etc.) or information about loan terms (loan vs. lease, term of loan, etc.).
While there is a degree of correlation between credit bureau scores and custom application scores, they capture different predictive patterns to identify the likelihood an applicant will pay back a debt as agreed. As a result, most lenders will make decisions on a credit applicant using both a credit bureau score and custom application score. In many cases, the applicant will need to pass the score cutoff for both.
While the various credit bureau scores used by lenders are widely available to consumers, custom application scores are not. One key reason for this is the potential confusion this could cause consumers. As custom application scores are unique for each lender, they do not have a standard score range and the scale can be reversed (higher scores can mean higher risk).
From a consumer’s perspective it is important to understand that the generally recommended practices for maintaining a healthy credit bureau score–paying bills on time, keeping credit balances relatively low and only seeking new credit when needed–apply to custom application scores as well.
Tom Quinn is Credit.com’s Consumer Credit Expert. Tom shares invaluable insight to navigating the often complicated world of credit scoring, credit reporting and credit granting industry practices. Formerly with FICO (Fair Isaac), MDS (currently Experian) and Citibank, Tom has more than 20 years of behind the scenes experience within the credit industry.