Would open source credit score formulas be feasible?
Has this already occurred, if not: why? What are the road blocks? I think it's just that the barriers to entry are rather high.  Lenders would potentially be interested in a new score if it demonstrably saved them money (by more effectively weeding out risky borrowers), but because the FICO score already exists and they already know how to use it, there are costs and risks in making the transition, so lenders are unlikely to switch without solid evidence.  But to get solid evidence, you would need to test out the new score and see how well it correlated with loan default and so forth.  So there is a catch-22: no one will use the score until they know it works, but you can't know whether it works until people start using it. The existence of non-FICO credit scores (like VantageScore) shows that it is possible for alternatives to crop up.  The question is just whether they have enough concrete advantages to overcome the track record and name recognition of FICO.  Only time will tell. As for why an alternative score wouldn't be open source, you could ask the same about almost anything.  Creating a measurably better score would likely take lots of time and money (to gather and analyze data both on characteristics of borrowers and on their record of debt payment).  If someone is able to do that, they would probably rather do it secretly and then milk it for billions by selling the results of the secret for a long time without selling the secret itself, as FICO has done. "The major bureaus use the Fair Isaac scoring model, for the most part.  Here's an excerpt from a web site (Versions of the FICO scoring model) to explain: One of the first things a newcomer to this board learns is the difference between FICO and FAKO scores. FAKO refers to the non-FICO scores offered by various companies. FAKO scores have little value since few of them are used by lenders and they do not match closely to FICO scores.    But even when you stick with FICO scores, confusion can ensue because FICO scores have many different editions, versions, and variations. On a single day, a consumer could theoretically have dozens of different FICO scores, depending on which version and credit agency is used to produce the score.   This post provides a summary of the various FICO versions. Please offer any corrections or updates, and they will be edited in.   The FICO scoring model with its familiar range of 300 to 850 was first introduced in 1989. Since then, FICO has released five major revisions:   1995, 1998, 2004, 2008, and 2014.  Each ""edition"" uses a different formula and produces a different score.   When a new FICO edition is released, many lenders continue using an older version for years before ""upgrading."" The 1995 revision is no longer in common use, but later editions are still used by lenders.   Most FICO editions are commonly known by the year of introduction:  FICO 98, FICO 04, and FICO 08 (although FICO now calls it FICO Score 8, without the zero).   The most recent edition is FICO Score 9 introduced in 2014.   As of 2014, FICO Score 8 is the most commonly used. However, most mortgage lenders use FICO 04 for Equifax and Transunion, and FICO 98 for Experian.   In addition to the ""classic"" version, FICO offers ""Industry Option"" versions customized for auto loans, credit cards, installment loans, personal finance loans, and insurance. These have a score range of 250 to 900, so the scores are not fully comparable with ""classic"" versions. As of 2015, Auto and Bankcard scores are available from myFICO as described here.  Citibank provides the Equifax FICO 8 Bankcard score free each month to credit cards holders.   Each credit agency (Transunion, Equifax, and Experian) uses a customized version of each FICO edition. As a result, a consumer's FICO scores from each agency may differ even when all credit information is identical among the agencies.   Because there are many FICO versions, when a score is received, it's helpful to know which version it is. If a lender provides a credit score, ask for details such as which credit agency was used, which FICO edition was used, and whether the score is an Industry Option version. The lender may not always be willing or able to provide the answers, but it doesn't hurt to ask.  Transunion   Official name:   FICO Risk Score Classic 98    Common name:  TU-98   Available directly to consumers:   No    Real-world score range:  336 to 843     (as shown on page 16 of this Transunion document)   Equifax   Official name:   Equifax FICO Score 4  (also known as Equifax Beacon 96)   Common name:   EQ-98   This version appears to be seldom used, but a poster reported it used on a mortgage application in 2014.   Available directly to consumers:   No   Experian   Official name:   Experian FICO Score 2  (also known as Experian FICO Risk Model v2)   Common name:   EX-98   Available directly to consumers:   from myFICO when buying a product that includes all 19 available scores (as described here).  Some credit unions such as PSECU provide it free each month to members.   Real-world score range:   320 to 844     (as shown on this Experian document) Most mortgage lenders use FICO 04 for Equifax and Transunion, and FICO 98 for Experian.   All three scores will normally be pulled and the middle score (not the average) will be used by the lender. Transunion   Official name:   Transunion FICO Score 4  (also known as Transunion FICO Risk Score Classic 04)   Common name:  TU-04   Available directly to consumers:   from myFICO as described here.   Real-world score range:   309 to 839     (as shown on page 16 of this Transunion document)   Equifax   Official name:   Equifax FICO Score 5  (also known as Equifax Beacon 5.0)   Common name:   EQ-04   Available directly to consumers:   from myFICO as described here.  Also available from Equifax when buying FICO score (as a one-time purchase with the ""Score Power"" product available here, or as part of credit monitoring available here).  Some credit unions such as DCU provide it free each month to members.    Real-world score range:   334 to 818   Experian   Official name:   Experian FICO Score 3 (also known as Experian FICO Risk Model v3)   Common name:   EX-04   Available directly to consumers:   from myFICO when buying a product that includes all 19 available scores (as described here).   Real-world score range:   325 to 850     (as shown on this Experian document) Transunion   Official name:   Transunion FICO Score 8  (also known as Transunion FICO 8 Risk Score or FICO Risk Score Classic 08)   Common name:   TU-08   Available directly to consumers:   from myFICO as described here. Some credit card issuers such as Discover, Barclays, and Walmart provides it free each month.   Real-world score range:   341 to 850     (as shown on page 15 of this Transunion document)   Equifax   Official name:   Equifax FICO Score 8  (also known as Equifax Beacon 09)   Common name:   EQ-08   Available directly to consumers:   from myFICO as described here.    Real-world score range:   300  to 850   Experian   Official name:   Experian FICO Score 8  (also known as Experian FICO Risk Model v8)   Common name:   EX-08   Available directly to consumers:   from myFICO as described here.   Real-world score range:   316  to 850     (as shown on this Experian document) How FICO Score 8 differs from previous versions is explained here.    In May 2014, a poster named android01 received 850 scores from all three credit agencies, as described in this post.    In June 2014, a poster named fused received 850 scores from all three credit agencies, as described in this post.   This 2011 press release describes a study of FICO Score 8 scores.   From a sample of 250,000 credit reports, it found 0.02% had a score of 850, or about 1 out of every 5000 persons. In 2014, FICO announced a new version called FICO Score 9.  More info here. As of February 2016, the score is now available directly to consumers, as described here. This New York Times article  says FICO 9 includes two important changes:    unpaid debts that result in collection actions will no longer have a negative effect on a score if the debt has been paid.    unpaid medical debts will have less negative effect on scores. In 2001, FICO released a new scoring model called NextGen.   It is claimed to be an improvement over ""classic"" FICO models because it tracks more factors.  But it has failed to catch on with lenders because its score range of 150 to 950 is incompatible with the familiar 300 to 850 range, requiring lenders to recalculate cutoff scores and revise many rules and policies.  Only a small percentage of lenders reportedly use NextGen. Transunion   Official name:   Precision   Available directly to consumers:    No   Equifax   Official name:   Pinnacle   Available directly to consumers:   In 2014, Pentagon Federal Credit Union (PenFed) began to provide this score free to its credit card holders, as discussed in this post.   Experian   Official name:   FICO Advanced Risk Score   Available directly to consumers:    No I included all of this to make the point that there are many variations of the scoring models, and all of them are customized to one degree or another by each of the major bureaus as a means of giving their models more credibility, as far as they're concerned. To your question about coming up with a ""fair"" scoring model, can you propose what makes current scoring models unfair?  I think it's a safe assumption to make that the financial community has already had a substantial amount of input into how the current scoring models work.  To think otherwise implies that the credit bureaus are just kinda ""winging it"" with whatever they think is best.  Their models are designed to give their client creditors the best scoring model possible based on what those creditors have stated is important to them. There isn't a unified single scoring model out there, and the bureaus definitely won't share the details of their modifications.  You can always come up with your own custom model, but how it compares to what's widely used, that's anyone's guess. I hope this helps. Good luck!"
Since recent changes to credit scoring (July 2017) it may not be necassary to do this, as more emphasis is placed on having a timely payment history and less emphasis is placed on having a low credit utilization ratio. Using what’s known as trended data is the biggest change. The phrase   means credit scores will take into account the trajectory of a   borrower’s debts on a month-to-month basis. In fact, having a low credit utilization ratio may even negatively effect you (if your available credit line value is high): ... VantageScore will now mark a borrower negatively for having   excessively large credit card limits, on the theory that the person   could run up a high credit card debt quickly. Those who have prime   credit scores may be hurt the most, since they are most likely to have   multiple cards open. But those who like to play the credit card   rewards program points game could be affected as well. source The true answer is it depends because  it is up to the credit card issuer to follow the right path when issuing a replacement credit card. http://www.bankrate.com/finance/credit-cards/will-replacement-card-hurt-my-score.aspx Typically, issuers will transfer the account history to the new trade line, says Barry Paperno, the consumer operations manager at FICO, the creator of the FICO scoring formula. The new account should have the old open date, so you should retain your payment history, he says. The credit limit and balance should also stay the same. http://blog.credit.com/2014/02/lost-or-stolen-credit-card-hurt-your-credit-scores-76724/ How Issuers Report Replacement Cards We asked the major card issuers how they report replacement cards to credit reporting agencies: American Express: The new card has the same open date and “Member Since” year as the previous card. The balance on the old account number is transferred to the new account number. All payment history transfers over. Bank of America: All transactions and account history are transferred to the new account number when there is a card replacement or renewal. Capital One: The new account number with all the original account data (original open date, etc.) is reported along with a notification to the bureaus that the new account number is replacing the old.  The two tradelines can then be ‘merged’ into one, so that all the applicable payment history, balance, etc. is now under the new account number. Chase: The original tradeline does not change. The history on the account remains, just the account number field is updated with the new account number. There is no “new” tradeline in this scenario. It may or may not be a good idea to borrow money from your family; there are many factors to consider here, not the least of which is what you would do if you got in serious financial trouble and couldn't make your scheduled payments on the loan. Would you arrange with them to sell the property ASAP? Or could they easily manage for a few months without your scheduled payments if it were necessary? A good rule of thumb that some people follow when lending to family is this: don't do it unless you're 100% OK with the possibility that they might not pay you back at all. That said, your question was about credit scores specifically. Having a mortgage and making on-time payments would factor into your score, but not significantly more heavily than having revolving credit (eg a credit card) and making on time payments, or having a car loan or installment loan and making on time payments. I bought my house in 2011, and after years of paying the mortgage on time my credit score hasn't changed at all. MyFico has a breakdown of factors affecting your credit score here: http://www.myfico.com/crediteducation/whatsinyourscore.aspx. The most significant are a history of on-time payments, low revolving credit utilization (carrying a $4900 balance on a card with a $5000 limit is bad, carrying a $10 balance on the same card is good), and overall length of your credit history. As to credit mix, they have this to say: Types of credit in use Credit mix determines 10% of my FICO Score The FICO® Score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It's not necessary to have one of each, and it's not a good idea to open credit accounts you don’t intend to use. The credit mix usually won’t be a key factor in determining your FICO Score—but it will be more important if your credit report does not have a lot of other information on which to base a score. Have credit cards – but manage them responsibly Having credit cards and installment loans with a good payment history will raise your FICO Score. People with no credit cards tend to be viewed as a higher risk than people who have managed credit cards responsibly. "You can't get your credit score for free, just the report with the information the score is based on.   If you got credit reports through annualcreditreport.com, the Score tab would typically contain an advertisement for purchasing your score.  If you have an ad-blocker enabled, that might be blocked, explaining the blank page.  Try turning off any browser extensions that alter how pages are shown.   The accounts page/tab/section should show something like ""0 open accounts"" or similar, to indicate that it is loading data.   Your lack of credit history probably does mean you don't have a credit score, so it's probably not worth paying anything to find that out.  The focus should be on the accuracy of the underlying report, since you can do something about that.   Should I be worried? I'd say no on that.   You'll have an easier time getting credit (and better terms) in the future if you start now with some account, even if it's a secured credit card you don't use much, because the age of the oldest and average accounts are factors in credit scoring models." I work as an investment risk manager for what would popularly be called a top tier investment manager. Most large asset managers use vendor models like RiskMetrics, Algorithmics, Barclays Point, Barra or something similar, and use those to calculate endless varieties of analytics and risk metrics.   Some of these are granular risk models (single asset based and computing covariances between them) while others are factor models (e.g. mapping bonds to a yield curve and sector and country spread and computing the risk largely based on that mapping). Things like Value at Risk in any of its many flavors (simulated vs non simulated, mainly), ex-ante risk relative to a benchmark, stress tests, duration, beta, yield, spread, expected shortfall, what have you...   Counterparty/credit risk is a whole different world I could get into. What else do you want to know in detail? The answer to this question can be found in the related question  Is there any online personal finance software without online banking? yeah... no track record.  Here's what I'm predicting:  PayPal-like policies designed to keep money in limbo (aka a float operation).  Personally, I'm surprised that Visa, Mastercard, et. al. haven't applied Dodd-frank transaction fee limits to prevent square from inserting itself between the consumer and creditor. In this example you are providing 4x more collateral than you are borrowing.  Credit score shouldn't matter, regardless of how risky a borrower you are.  Sure it costs time and money to go to auction, but this can be factored into your interest rate / fees. I don't see how the bank can lose.