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!"
The credit scale is deceptive, it goes: AAA, AA, A, BBB, BBB-, BB+, BB, B, CCC, CC, C, D. In reality it should be A,B,C,D,E, F, G,H, I, etc. The current scale does not reflect with clarity the ranking of risks and ratings. AA is much worse than AAA, but the uncertainty involved can be scary. Check out these corporate and sovereign debt credit ratings. I thought it was such a useful suggestion that I went ahead and created them. I'm sure you're not the only one who could derive some benefit from them, I know I will. http://www.investy.com/tools When I have some additional time, I will add the option for grace-periods, but for now I wanted to get them up so you could use the calculations as-is from the article. Enjoy. (Disclosure: I'm the founder of the site they are hosted on and I wrote the code for the calculators) Not really in corporate finance, but I can see this being use to academics if it's good. As you mention, professionals usually have access to Bloomberg terminals and other data tools which kind of obsolete a third party project. Academics, on the other hand, are often lacking access to those kinds of resources. I'm not sure there is good data on Kiva, etc, but P2P microlending site Prosper has released their data. The default rates are evidently fairly high. For borrowers in the 'developed' world (the target audience of Prosper), other sources of credit are available (e.g. banks); one has to suspect, then, that borrowers on Prosper are considered too risky for bank loans. "Dan's link (he deleted his answer, BTW) is fine, it showed the components of the score FICO offers.  Each input has data behind it, a bell curve of the behaviors and risk of the person behind it. For example, we've discussed utilization many time here. The ideal utilization is not 0%, but 1-19%. This does not mean paying interest, or carrying charges from month to month.  Say I had just one card with a $10K limit. I'd want to be sure I never ran a bill above $2000. If I did, I'd see a slight drop in my score, and next month, it would go back to normal. In my case, I have enough available credit that going over 20% is rare, and if it happened, I'd pay the bill down before the bill was issued, just make a mid-cycle payment.  FICO decided that those who go over 20% have a higher risk of default. And it gets higher as it goes up. Same with every aspect of the score's components.  You are comparing US to non US use. In the US, it seems far more common to use our cards. In my family's case, we use very little cash, and run most of our spending through our cards.  As far as The David is concerned, one should separate those who carry a balance from those who pay in full. The pay in full users are better off for their habits and responsible card use. In the US, it's not easy to rent a car or book a hotel with no card. Cards offer a cash rebate that adds up fast, and purchase protection from fraudulent vendors. They also offer extended warranty coverage.  The David, and others, claim that ""studies prove those using cards spend 10-15% more than cash buyers."" This is a proven fact from scientific studies. Only they don't exist. The best I've seen proves that college kids given a $20 bill spend more carefully than those given a $20 credit card. This doesn't extrapolate to a family budget, and never will. But that quote has a way of being repeated as fact. Yes, it's non-sense, thank you for reading and quoting my blog, I recognize the quote.  The report also shows accounts that have gone to collection. An electric bill isn't a regularly reported item, it's assumed your lights are on. But if you stop paying the bill and they send your account to a collection agency, you'll see it hit your report.  In response to the comment below - Journal of Experimental Psychology: Applied article titled Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior runs 13 pages but on the first page offers ""Do consumers spend differently when using one payment mode relative to another mode? For example, do consumers spend more when they receive $50 in the form of a gift card than in the form of cash? If indeed they do, then why? This research addresses these issues.""  $50? A $50 gift card is a nuisance, I try to use it up within hours of getting one. As I stated above, the behavior of a person with such a card doesn't scale to a many-thousand-per-month budget. Such articles, in my opinion, are nonsense, proving nothing.  Unfortunately, this is a bit of a tangent to the original question, and if I put up a stand-alone ""Is it a fact that people spend more if using a card than cash?"" the question would result in being closed as one that's seeking opinions, not facts." My bank will let me download credit card transactions directly into a personal finance program, and by assigning categories to stores I can get at least a rough overview of that sidd of things, and then adjust categories/splits when needed. Ditto checks. Most of my spending is covered by those. Doesn't help with cash transactions, though; if I want to capture those accurately I need to save receipts. There are ocr products which claim to help capture those; haven't tried them. Currently, since my spending is fairly stable, I'm mostly leaving those as unknown; that wouldn't work for you. Great effort on the question. All I can advise is: If paypal does not provide the mapping table (Type, Status, Credit/Debit) you will have to build it up yourself as you go along. I would tackle it this way: Your SQL mapping table has Credit/Debit entries for all knows combinations and the Credit/Debit entry would be -1 for all. Then, as you get a list of transactions you will have to display all possible results to the user who will then tick the correct one (comparing it to the balance). You would store the Credit/Debit entry if it is unique. This way you will learn what the possible combinations are over time. Its a to the nth problem, so maybe start with a small number of transactions first. I expect you can build up pretty quickly. It will be an interesting experiment... I did a brief analysis during my undergrad on the sustainability of Subprime Auto-Loans ...there was definitely a lot more information that I could have included in my research. IMO it'd be a decent topic that would be perfect for a quantitative argument. The Government sponsored website will give you one free report from each of the 3 bureaus every year. No subscription or anything of the sort and no ding (that I've seen). Most people check it 3 times, every 4 months. http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm Banks use quite a few parameters to arrive at the decision for card approval. The credit score is just one input. There are multiple other inputs it would source, for example total years in job, the number of years in current job, income streams, etc ... the exact formula is a trade secret and varies from Bank to Bank "An index is just a mathematical calculation based on stock prices. Anyone can create such a calculation and (given a little effort) publish it based on publicly available data. The question of ""open source"" is simply whether or not the calculator chooses to publish the calculation used. Given how easy an index is to create, the issue is not the ""open source"" nature or otherwise, but its credibility and usefulness." Yes and no, P2P Capital Markets is similar concept but is more geared towards business loans. Community Lend used to offer this service but has stopped. I visited annualcreditreport.com to get my annual credit report.  It is only the report, not the score or FICO score.  This is the only outlet I know of that allows you to get your report for free, without a bunch of strings attached or crap to sign up for and cancel later. It was very easy.  I was wary of putting in my private information, but how else can they possibly pull you up? Read the instructions carefully.  You go to each bureau to fetch your report, and they dutifully give you a free report, but they push hard to try and sell you a score or a report service.  It is easy to avoid these if you read carefully. Once you get a report,  you have print it out or you can't see it again for another year.  Each bureau has a different site, with different rules, and different identity checks to get in.  Again, read the instructions and it isn't hard. Instead of printing, I just saved the page as HTML.  You get one html file and a folder with all the images and other stuff.  This suits me but you might like to print. After you get each report, you have to click a link to back to the annualcreditreport.com site.  From there you go to the next bureau. Regarding a score.  Everybody does it differently.  Free Issac does FICO, but anybody who pulls your credit can generate a score however they like, so getting a score isn't anywhere near as important as making sure your report is accurate. You can use credit.com to simulate a score from one of the bureaus (I can't easily see which one at the moment).  It is as easy as annualcreditreport.com and I have no issue getting a simulated score and report card. There are companies who sell data gleaned in aggregate from credit card providers to show how much of what category of product is sold online or offline, but that data is not cheap.  1010data is one such data aggregator we are talking to right now. Haven’t seen pricing yet but I expect 6 figures to access the data "Credit Unions have long advocated their services based on the fact that they consider your ""character.""  Unfortunately, they are then at a loss to explain how they determine the value of your character, other than to say that you're buddies & play pool together so they'll give you a loan. Your Credit History / Score is as accurate a representation of your character in business dealings as can be meaningfully quantified.  It tracks your ability to effectively use and manage debt, and your propensity to pay it back responsibly or default on obligations.  While it isn't perfect, it is certainly one of the best means currently available for determining someone's trustworthiness when it comes to financial matters."