Why Are Some Lenders Still Using Old Credit Scoring Models?

Companies like Vantage Score and FICO keep updating their scoring models regularly and periodically to keep up with the changing behavior of customers. They test them first to ensure that they are effective in predicting credit risk. New consumer behavior like using cards for all kinds of shopping, paying bills et al are taken into consideration when developing newer credit scoring models. At the same time, it is ensured that the basic features do not change.

The basic function of a credit score is to predict future consumer behaviour by taking his credit history into account. Negative items like non-payment of bills, maxing credit cards and frequent application for loans and credit are some of the factors that are taken into account at the time of calculating credit scores.

Despite the new and advanced features that are added to scoring models to make them much more stable, there are not many lenders who use them. They are encouraged to do so by the scoring companies by providing predictive and stable scoring models to evaluate a consumer’s credit worthiness.

Every credit scoring company upgrades their scoring model so as to adapt to newer consumer trends. Both VantageScore and FICO have upgraded their scoring models frequently. Consumers do not become aware of how and when these changes take place. But with changes in regulations, consumers can request for their choice of credit scores along with their report. It may not necessarily be the same as what the lender uses.

The newer models are much more predictive than the older ones as they reflect the new-age consumer’s credit habits much more accurately. The “rate shopping logic” of the earlier versions has become a standard of all scoring models and has given way to newer enhancements.

Lenders are much more cautious and take a number of precautions before extending credit. At such times, these new models help them to predict consumer behaviour accurately. But as they are not mandated to do so under the law, some of them still use older versions.