Home > Credit Score > You Are More Than Your Credit Score

Comments 0 Comments

If you are planning to borrow money any time soon, it is likely you will be judged by a three-digit number known as your credit score. Fair, Isaac and Company – FICO — was the analytics company that pioneered the concept of credit scoring now used by lenders around the world. Since then, other companies have joined in with their own credit scoring models.

The friendly credit scoring folks boil your credit history down to a three-digit number reflecting several key factors that help determine the creditworthiness of an individual. These include your payment history, how long you’ve had credit, the types of credit you’ve had, how much you owe versus how much you have borrowed and how often you apply for credit. These factors combined produce your credit score, which is a key part in a lender’s decision as to whether you are creditworthy, and if so, what loan terms you should be offered.

Although this number and related methods have served the lending community well over the years, in order to better serve future borrowers, the next generation of lenders must factor in a richer, more complete set of data, one that not only looks at the individual behind the loan application but also the people – the “social network” – around them. Bringing the community into lending provides a more complete representation of a person’s creditworthiness, leading to more accurate rates and, ultimately, money saved for borrowers.

An Incomplete Reflection

The FICO score and other analytic models have been remarkably useful since their creation in the late ‘80s, but as with any established process, there are limitations.

Today’s algorithms are, no doubt, impressive. In less than a millisecond, they can parse vast mountains of data to make more informed decisions, examining many of the key factors traditionally used in determining a borrower’s likelihood of repayment. With power like this, it’s easy to assume every base is covered – but is that really the case?

One mistake can deny a good borrower access to credit, and at a minimum diminish their ability to secure a great rate. For example, many Americans with excellent credit scores – in this example, about a 780 FICO score — can lose up to 100 points off their credit score for a single 30-day late payment. What’s more, getting a credit score “back on track” can take upwards of two to three years.

As we all know, there’s more to a person than just their past – and there’s more to someone’s creditworthiness than their individual financial circumstances.

Are you working toward a career in medicine, or perhaps as a computer programmer? Do you have one semester left before earning an MBA? Do you come from a close-knit community that is committed to helping you succeed? An algorithm won’t account for these factors when it determines your loan eligibility or APR. Its focus is narrowed only to past borrower performance history, in isolation.

Friends and family have the best insight into a borrower’s potential and can serve as a check-and-balance when paired with data-driven methods for evaluating creditworthiness. Reliance on data science and objectivity should still underlie loan applicant evaluations, but when we consider individual potential and social factors coupled with data-driven analytics, a more complete, truthful assessment of an individual emerges.

Loan Decisioning 2.0

It’s safe to assume people understand people better than machines ever will.

Before score-based loan decisioning, real people decided who got approved for a loan. Lenders consulted friends, family, neighbors and employers to get a sense of your creditworthiness. Modern data infrastructures did not exist, so it was a borrower’s network that factored heavily into a lending decision. Lending was communal. It was human.

As the financial industry recovers from the wounds of the Great Recession, we are afforded the opportunity to rethink lending – a “Loan Decisioning 2.0” – but if we are ever going to create such a change, in addition to data we must again factor for a human perspective. The intention is not to replace the current system, rather to complement those data-driven decisions with real-life network data. Together, they will ensure a clearer reflection of an individual borrower.

Let’s take the best of lending’s roots, in an objective and fair manner, and ensure borrowers are afforded manageable interest rates that reflect their true potential. Let’s consider the people who know them best when making a decision.

Let’s put the social back into lending.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More on Credit Reports & Credit Scores:

Image: DigitalVision

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team