What’s a Credit Scorecard?

Within each credit scoring system there is a series of scoring models, or mini-models as some have called them. These mini-models are called scorecards.  Now, let’s not confuse the issue with a bunch of techie mumbo jumbo.  A scorecard is a unique scoring environment designed to evaluate the potential risk of a homogenous population of consumers.  Or, in English, it’s designed to predict the risk for certain groups of people.

For example, there is a scorecard that is designed to “score” consumers with only one account on their credit report.  This is called a thin file scorecard. There is a scorecard that is designed to score consumers with a bankruptcy on their credit report.  This is called a bankrupt scorecard. Most scoring systems have at least 10 scorecards, and some have many more.

A scorecard is a series of characteristics, variables and weights. Or, better put, a scorecard is really a questionnaire for your credit report.  The scorecard asks your credit reports a series of credit related questions (characteristics), your credit report provides answers (variables), and then the scorecard assigns you points based on your credit reports’ answers (weights).  Once this process is complete your points are added up and you end up with a credit score.

This entire process takes a micro-second and isn’t something the consumer or the credit bureaus control.  This is all pre-programmed by the credit score developer (like FICO) and installed as part of the credit scoring software.

The series of questions that are in each scorecard (characteristics) is a result of research to determine the most predictive (valuable) line on inquiry. For example, “How many inquiries in the past 12 months” is a very common characteristic in a FICO score. Why?  It’s common because the number of inquiries in the past 12 months is predictive of elevated credit risk.

If the characteristic has no value then it doesn’t make it into the final model.  Finding the most predictive combination of questions to ask your credit report is determined during the model development or redevelopment process.  It’s entirely based on science and research and not at all based on anecdotal evidence.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.