6 ms·

I wonder if open source software can play a role in this. Maybe we can have an open source algorithm for determining credit ratings and private companies only p

I wonder if open source software can play a role in this. Maybe we can have an open source algorithm for determining credit ratings and private companies only provide a secure database of ratings. It will also offer the lay person insights into how the credit rating is exactly determined. They can know what is causing their rating to be less than desired and take appropriate action, instead of watching a random youtube video titled "5 ways to quickly improve your credit score".

akira2501 2y ago
> and take appropriate action Presumably the reason they have a lower score than desired is because they already failed to do this in one form or another. > "5 ways to quickly improve your credit score". Have no inquiries. Have no forced account closures or writeoffs. Have as much total open credit as you can without triggering the first two. Have at least one secured or unsecured installment loan open and then paid off every 5 years. Always pay your bills on time. It's not quick, I suppose, but the recipe is already pretty well known.
- Dalewyn 2y ago
  Pretty much, yeah. A credit score is a descriptor of the risk of financial loss when lending the individual concerned some money. So the only real way to grow and keep the score high is: * Pay your credit card and loan statements when they are due (late payments imply you don't have money). * Keep credit inquiries to the minimum necessary (an inquiry means you're asking for a loan, implying you don't have money). * Don't max out your credit limits if possible (you're taking and maxing out lines of credit, implying you don't have money). * Keep old credit cards open even if you don't use them, if it's practical (a longstanding open line of credit implies you have money). * Keep doing all of the above for many years (a good credit score implies you have money and will pay back debts incurred). There's no magic or mystery to it, it just takes a lot of time to grow and keep high because you're building and maintaining trust with banks. You know that old saying? Trust is built over years but destroyed in a second? Yeah.
  - ykonstant 2y ago
    More than half of the above don't imply that you don't have money. Lack of money is only one of the possible reasons for those situations. * an inquiry means you're asking for a loan, implying you don't have money Entities with tons of money seek loans all the time for liquidity and risk mitigation. * you're taking and maxing out lines of credit, implying you don't have money Nope, lack of understanding how CC scoring works (scoring designed to keep you in the credit mill) can lead to maxing out while being perfectly comfortable financially. * Keep old credit cards open even if you don't use them, if it's practical (a longstanding open line of credit implies you have money). What in tarnation. This entire charade is a grotesque dance of mad clowns.
    - Dalewyn 2y ago
      >Lack of money is only one of the possible reasons for those situations. As far as a lender is concerned, if you don't pay back your debts you might as well not have money even if you actually do. >Entities with tons of money seek loans all the time for liquidity and risk mitigation. And each and every one of those inquiries will lower your credit score, because you're taking on more debt. Do you have money? Will you pay the debt back? The more inquiries there are (the more you ask for loans) in a given span of time, the less likely it is you have money and will pay debts back. >Nope, lack of understanding how CC scoring works (scoring designed to keep you in the credit mill) can lead to maxing out while being perfectly comfortable financially. Banks hate seeing lines of credit maxed out. Ask any banker worth his salt and they will all tell you the same. If it wasn't obvious already, banks don't like lending money. That might sound strange, but for a bank (the lender) a loan is an investment and investments are risks. The more loans (debt) someone has, the more risk they are carrying and thus their credit score will reflect that. >What in tarnation. A line of credit in good standing that has been open for a long time means you've been making your payments properly, meaning the risk of lending money to you is lower than someone who does not have a line of credit as old. Thus, your credit score will be higher. The age of your credit is usually determined by your oldest open line(s) of credit. Closing an old line of credit means it will eventually fall off your credit report and stop being reflected in your credit score, which will fall to reflect the new and younger age of your credit. Again: Everything about credit score is solely about the risk you might pose to a lender. Anything that increases that risk will lower the score, and vice versa, even if it's just an implication.
- ourmandave 2y ago
  Thinking of my last loan application, they ask you if you own or rent and how long you've been at that address. Also current job and income and how long there.
  - jon-wood 2y ago
    At least in the UK this is done as well as pulling your credit score, traditionally it's not a factor feeding into your credit score. Banks check both your history of paying off debts and your ability to continue doing so, it doesn't matter how good your score is, if you ask for an unsecured loan that's 20x your annual income over the next 5 years it's going to get refused. This is all somewhat complicated by recent products from credit agencies, which make use of the Open Banking standard to pull data direct from your bank accounts and use that data to feed into credit scoring as well.
astura 2y ago
FICO already tells you what goes into their scoring algorithm. It's not a mystery. https://www.myfico.com/credit-education/whats-in-your-credit-score https://www.myfico.com/credit-education/whats-in-your-credit...
- standardUser 2y ago
  These agencies had far less regulation and transparency before Dodd–Frank in 2010.
  - astura 2y ago
    So?
- isthatafact 2y ago
  I was curious, so I checked that page and did not find the equation used to calculate the "score", only vague hints. Is there a formula, spreadsheet, or code that people could use to verify their score? Or is it indeed a mystery?
alistairSH 2y ago
Not only do banks and credit agencies provide a "recipe" for improving your score, most do so free of charge (for existing customers). For example, I know my score swings by +/-30 points/month. I'm fairly confident that is due to the balance on my CCs varying when the score is calculated (there is nothing else about my financial situation changing - same house for a decade, same car loan for 5 years, no new credit lines/loans, etc). But, I pay the cards off every month, and the score always rebounds.
- matwood 2y ago
  Mine swings monthly for the same reason, though not as much. The report I get tells me why it swings ('used credit balance').
  - alistairSH 2y ago
    Yeah, I was surprised at how much it swings, but it's high enough it shouldn't matter (and easy enough to not use the cards for a month, let it rebound, then borrow whatever I need to borrow). The report from my bank never says why. It does list factors that contribute to my score, but they're all "good" (low usage as % of available, all payments on time, etc). And never change.
    - matwood 2y ago
      I'm signed up for all the credit bureaus free accounts so I can freeze/unfreeze my credit. They send out reports monthly, along with one of my CCs. All of them have the reason. And yeah, the score is ~800 so it doesn't really matter. Still interesting to see how it moves with relatively small balance changes.
- jjav 2y ago
  > I'm fairly confident that is due to the balance on my CCs varying when the score is calculated Yes. It feels wrong that the current balance of credit cards is considered debt. It should only be considered debt once (if) you start paying interest on it. So if you pay it off fully every month, it shouldn't be seen as debt. But whatever, they consider it debt so it can make the credit score swing up and down a lot. I see this every late summer when I pay my childs school bill for the upcoming year on a credit card. It is a very large amount so suddenly my credit utilization goes up and my credit score drops around ~70 points. Then a month later I pay it off and the credit score goes back up the same ~70 points.

akira2501 2y ago

> and take appropriate action Presumably the reason they have a lower score than desired is because they already failed to do this in one form or another. > "5 ways to quickly improve your credit score". Have no inquiries. Have no forced account closures or writeoffs. Have as much total open credit as you can without triggering the first two. Have at least one secured or unsecured installment loan open and then paid off every 5 years. Always pay your bills on time. It's not quick, I suppose, but the recipe is already pretty well known.

Dalewyn 2y ago
Pretty much, yeah. A credit score is a descriptor of the risk of financial loss when lending the individual concerned some money. So the only real way to grow and keep the score high is: * Pay your credit card and loan statements when they are due (late payments imply you don't have money). * Keep credit inquiries to the minimum necessary (an inquiry means you're asking for a loan, implying you don't have money). * Don't max out your credit limits if possible (you're taking and maxing out lines of credit, implying you don't have money). * Keep old credit cards open even if you don't use them, if it's practical (a longstanding open line of credit implies you have money). * Keep doing all of the above for many years (a good credit score implies you have money and will pay back debts incurred). There's no magic or mystery to it, it just takes a lot of time to grow and keep high because you're building and maintaining trust with banks. You know that old saying? Trust is built over years but destroyed in a second? Yeah.
- ykonstant 2y ago
  More than half of the above don't imply that you don't have money. Lack of money is only one of the possible reasons for those situations. * an inquiry means you're asking for a loan, implying you don't have money Entities with tons of money seek loans all the time for liquidity and risk mitigation. * you're taking and maxing out lines of credit, implying you don't have money Nope, lack of understanding how CC scoring works (scoring designed to keep you in the credit mill) can lead to maxing out while being perfectly comfortable financially. * Keep old credit cards open even if you don't use them, if it's practical (a longstanding open line of credit implies you have money). What in tarnation. This entire charade is a grotesque dance of mad clowns.
  - Dalewyn 2y ago
    >Lack of money is only one of the possible reasons for those situations. As far as a lender is concerned, if you don't pay back your debts you might as well not have money even if you actually do. >Entities with tons of money seek loans all the time for liquidity and risk mitigation. And each and every one of those inquiries will lower your credit score, because you're taking on more debt. Do you have money? Will you pay the debt back? The more inquiries there are (the more you ask for loans) in a given span of time, the less likely it is you have money and will pay debts back. >Nope, lack of understanding how CC scoring works (scoring designed to keep you in the credit mill) can lead to maxing out while being perfectly comfortable financially. Banks hate seeing lines of credit maxed out. Ask any banker worth his salt and they will all tell you the same. If it wasn't obvious already, banks don't like lending money. That might sound strange, but for a bank (the lender) a loan is an investment and investments are risks. The more loans (debt) someone has, the more risk they are carrying and thus their credit score will reflect that. >What in tarnation. A line of credit in good standing that has been open for a long time means you've been making your payments properly, meaning the risk of lending money to you is lower than someone who does not have a line of credit as old. Thus, your credit score will be higher. The age of your credit is usually determined by your oldest open line(s) of credit. Closing an old line of credit means it will eventually fall off your credit report and stop being reflected in your credit score, which will fall to reflect the new and younger age of your credit. Again: Everything about credit score is solely about the risk you might pose to a lender. Anything that increases that risk will lower the score, and vice versa, even if it's just an implication.
ourmandave 2y ago
Thinking of my last loan application, they ask you if you own or rent and how long you've been at that address. Also current job and income and how long there.
- jon-wood 2y ago
  At least in the UK this is done as well as pulling your credit score, traditionally it's not a factor feeding into your credit score. Banks check both your history of paying off debts and your ability to continue doing so, it doesn't matter how good your score is, if you ask for an unsecured loan that's 20x your annual income over the next 5 years it's going to get refused. This is all somewhat complicated by recent products from credit agencies, which make use of the Open Banking standard to pull data direct from your bank accounts and use that data to feed into credit scoring as well.

astura 2y ago

FICO already tells you what goes into their scoring algorithm. It's not a mystery. https://www.myfico.com/credit-education/whats-in-your-credit-score https://www.myfico.com/credit-education/whats-in-your-credit...

standardUser 2y ago
These agencies had far less regulation and transparency before Dodd–Frank in 2010.
- astura 2y ago
  So?
isthatafact 2y ago
I was curious, so I checked that page and did not find the equation used to calculate the "score", only vague hints. Is there a formula, spreadsheet, or code that people could use to verify their score? Or is it indeed a mystery?

alistairSH 2y ago

Not only do banks and credit agencies provide a "recipe" for improving your score, most do so free of charge (for existing customers). For example, I know my score swings by +/-30 points/month. I'm fairly confident that is due to the balance on my CCs varying when the score is calculated (there is nothing else about my financial situation changing - same house for a decade, same car loan for 5 years, no new credit lines/loans, etc). But, I pay the cards off every month, and the score always rebounds.

matwood 2y ago
Mine swings monthly for the same reason, though not as much. The report I get tells me why it swings ('used credit balance').
- alistairSH 2y ago
  Yeah, I was surprised at how much it swings, but it's high enough it shouldn't matter (and easy enough to not use the cards for a month, let it rebound, then borrow whatever I need to borrow). The report from my bank never says why. It does list factors that contribute to my score, but they're all "good" (low usage as % of available, all payments on time, etc). And never change.
  - matwood 2y ago
    I'm signed up for all the credit bureaus free accounts so I can freeze/unfreeze my credit. They send out reports monthly, along with one of my CCs. All of them have the reason. And yeah, the score is ~800 so it doesn't really matter. Still interesting to see how it moves with relatively small balance changes.
jjav 2y ago
> I'm fairly confident that is due to the balance on my CCs varying when the score is calculated Yes. It feels wrong that the current balance of credit cards is considered debt. It should only be considered debt once (if) you start paying interest on it. So if you pay it off fully every month, it shouldn't be seen as debt. But whatever, they consider it debt so it can make the credit score swing up and down a lot. I see this every late summer when I pay my childs school bill for the upcoming year on a credit card. It is a very large amount so suddenly my credit utilization goes up and my credit score drops around ~70 points. Then a month later I pay it off and the credit score goes back up the same ~70 points.