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    progunr's Avatar
    progunr Posts: 1,971, Reputation: 288
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    #1

    May 31, 2008, 11:49 AM
    Credit Bureau Scoring Secrets?
    Why is it that you can't find anywhere, exactly how the Credit Bureaus compute the credit scores?

    Does anyone here have any insight into this process?

    I've worked with credit reports for most of my adult employment, so I know the basics, plus points for good stuff, minus points for negative stuff, but why is it we can't find out exactly how it is figured?

    For example, if someone files Bankruptcy, but reaffirms on the mortgage and the car loan.

    I know that initially, the score goes to the bottom of the pit, but, as the person continues to pay the mortgage and auto loan, there should be positive points adding to the score. In addition to these points, the debt to income ratio should be in a position after the Bankruptcy, as to not contribute any negative points to the score.

    Does the bankruptcy automatically stop ANY positive points from being added to the score until the 7 or 10 year period on the Bankruptcy expires? Say the individual gets several high rate credit cards, creates small balances on each, and pays them perfectly following the bankruptcy, that would create positive points as well.

    Again, given this example, how can the points stay at the bottom of the range, if these positive points are being added every month the payment is on time?
    Dr D's Avatar
    Dr D Posts: 698, Reputation: 127
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    #2

    May 31, 2008, 02:10 PM
    After working with the FICO scoring system for many years, certain aspects of it are still a mystery. Following a bankruptcy new good trade lines will increase the score dramatically. I encourage people to pull all three bureaus about 90 days after the discharge, to make sure that ALL items discharged are showing a such, rather than an open charge off or collection. This keeps the score from getting dinged twice for the same thing. Often I have seen a mortgage with NO history shown after a BK, even though it was reinstated. The explanation for this was that the trade line could only be reported once.

    Some years ago I sat through a 3 hour phone seminar hosted by Fair Isaac Company. The factors used in decreasing order of significance are: 1. Previous credit performance. 2. Current level of indebtedness. 3. Amount of time credit has been in use. 4. Pursuit of new credit. 5. Types of credit experience. Items 1 & 2 comprise about 60% of the score.

    The scoring model gets tweaked on a regular basis, so all we can do is guess at their method. I have pulled credit for a borrower from two different providers and shown similar scores from all three bureaus. The borrower got his score directly from the bureaus and they were substantially higher. Who the hell knows why.

    I could go on, but my fingers get tired.:)
    Loan_Guy's Avatar
    Loan_Guy Posts: 83, Reputation: 6
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    #3

    May 31, 2008, 09:31 PM
    Why is it that you can't find anywhere, exactly how the Credit Bureaus compute the credit scores?

    This is an industry trade secret and is constantly changing. It's like a moving target.

    I know that initially, the score goes to the bottom of the pit, but, as the person continues to pay the mortgage and auto loan, there should be positive points adding to the score. In addition to these points, the debt to income ratio should be in a position after the Bankruptcy, as to not contribute any negative points to the score.

    When a BK is filed, the score tanks. As you continue to make on-time payments, it will slowly increase, but it takes a while. When you reaffirm a home or vehicle, you choose to keep it out of the BK. The creditor does not have to agree. I have seen many vehicles that were reaffirmed by the filer, but not received / recognized by the creditor. It showed BK on the tradeline, but the filer had to keep paying or face repossession. Think of reaffirmation more as the ability to keep the house, car, etc., as opposed to a way to build credit right away after BK.

    Also, since your score does not look at income, the debt-to-income ratio has no bearing on the score. I think you may be thinking about the balance vs. limit ratio.


    Does the bankruptcy automatically stop ANY positive points from being added to the score until the 7 or 10 year period on the Bankruptcy expires? Say the individual gets several high rate credit cards, creates small balances on each, and pays them perfectly following the bankruptcy, that would create positive points as well.

    Again, given this example, how can the points stay at the bottom of the range, if these positive points are being added every month the payment is on time?


    No, the BK does not stop positive "points" from being added, it's just that they do not count as much. Look at it from their point of view: the filer just stiffed all (or nearly all) their creditors and now wants to show that they can handle money by getting a $200 secured credit card. As long as they keep making payments, the score will slowly increase, but they have to prove they can borrow money and pay it back on time. Since the accounts are closed when they are included in the BK, you lose a lot of reporting history and length of credit is a big factor in your score.

    Also remember that more recent events carry more weight, so the farther the BK is in the past, the better the scores will be. Just don't get in trouble again and start making late payments. You will then get hammered.

    I have seen clients that are two years out of a Ch. 7 with around 600 scores on a mortgage pull. They sent the discharge paperwork to the CRAs right away so that the info was reported correctly and then they started reestablishing credit and stayed within a budget, paying everything on time. I have also seen them in the 400's because they went back to their old ways. You just have to be diligent.


    Hope this helps!

    LG

    PS. You mentioned the 7 and 10 year mark. That's how long the BK is ALLOWED to stay on the report, not how long it HAS to stay on the report. In fact, it does not HAVE to stay on the report for even 1 minute. Something to think about...
    Dr D's Avatar
    Dr D Posts: 698, Reputation: 127
    Senior Member
     
    #4

    Jun 1, 2008, 08:24 AM
    Progunr - The old mortgage account remained on the report, but any activity following the BK was not shown, whether it was good or bad. To confirm a timely payment history on the mortgage we had to get a print out from the lender or get cancelled checks.:)

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