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Preparing to make a major purchase or take out a loan, often means doing whatever you can to improve your credit score. As we’ve reported, the multiple credit scores consumers have can help determine interest rates on loans and mortgages, and whether someone gets access to credit at all.
People try many strategies to get the perfect score, paying off old debt if they can, working to raise the limits on credit cards, or spreading debt across multiple cards. These efforts are essentially attempts to manipulate the algorithms that generate credit scores in to a person’s advantage.
Amber Miller, a certified financial planner in Minneapolis, already has a high credit score, but wants it to be even higher.
“At this point, if it’s under 800… I’m like what is going on?” she said. “Because now I feel like I’ve tried to figure out the system, worked the system to get it to be perfect.”
Miller had a general idea of what yields a good credit score, and yet, despite using far less than their allowable credit maximum on cards, and paying bills in full every month, she and her husband noticed their scores kept dropping, sometimes by 10 or 20 points at a time.
Miller decided to experiment with new strategies to boost her score, including changing how often she paid her credit card bills. She shifted from paying monthly, to biweekly, to finally weekly.
“It did absolutely jump our credit [scores],” said Miller. “I mean, like every week, it would go up 10 points for each of us.”
Her strategy was essentially guesswork. Credit scoring companies give broad outlines of their calculations, but the nuances are proprietary.
“So at a high level, we sort of know,” said David Silberman, a senior fellow at the Center for Responsible Lending, “but precisely what, what ‘credit history’ means and how it’s scored? Or what ‘types of credit’ means and how it’s scored? That’s all black box.”
Nevertheless, there is an entire industry promising easy fixes to improve credit scores, some which work, and some that don’t. Credit scoring companies are aware of most of these strategies, and regularly update their models to account for new types of data and changing consumer behaviors.
Ethan Dornhelm, vice president in FICO’s scores and predictive analytics department, gives the example of a trend popular about a decade ago of “authorized user piggybacking.”
“People would basically rent out their their sparkling credit card account,” he said, referencing accounts with high credit limits, low balances, and long histories. “And, for a fee, they would add people as an authorized user on their account. And by virtue of doing so that account would then get reported in that authorized users credit file and potentially factored into their FICO score.”
That often served to improve the score of the authorized user. Some parents also added children as authorized users on their cards to help them establish credit history. But after noticing the trend, FICO took a look at the algorithm and the data.
“And what we ultimately concluded was actually that authorized user information wasn’t as directly related to whether someone was going to pay future bills as agreed, than the information contained on the accounts that they were legally responsible for,” said Dornhelm. So FICO tweaked the algorithm in a later version to weight that information differently.
Not all changes are so clear cut. Credit scoring companies keep the finer details of their algorithms close to the chest for competitive advantage. But that leaves a lot of people guessing or listening to people giving BAD credit score advice.
“I think some folks who try it may actually misunderstand what counts as good and what counts as bad,” said the Center for Responsible Lending’s Silberman. “And they may actually do things which have the exact opposite effect from what they’re intending.”
And the consequences of guessing wrong can be severe. Safiya Noble, a professor at UCLA, has written extensively about the role of algorithms in our lives, and gave the example of someone who has a bad credit score and no dental insurance.
“If you don’t have dental care, and you have to finance a visit to the dentist on some type of dental credit card or credit system,” she said. (Access to those lines of credit, and the interest someone pays, can potentially rely on someone’s credit score.)
“Having good credit or not good credit should not determine like your health, and your well being and your ability to see a dentist and other kinds of specialists,” said Noble.
This is one of many reasons some consumers pay for monthly subscriptions to stay on top of their credit scores, or, like Amber Miller in Minnesota, use free online services or apps to track their score.
Miller said after she ended her experiment of weekly credit card payments, her scores started to drop again.
“I guess in some way I was trying to game the system, but I was just trying to see what would work,” she said.
But now that she thinks she knows how it works, Miller said she’s a bit frustrated. Because without her experiment of paying her cards off weekly, she would have a lower score.
“It feels unfair. It’s not real life.” she said. “If it’s a computer algorithm, it doesn’t have this overlay of a human saying, this is the same end, right? Like you pay [your credit card] off in full monthly, versus four times a month… It’s the same end so there is no difference.”
At the same time, Miller said she’s fortunate. She stilll has a high score, and doesn’t need any new credit at the moment.
“Day in and day out, I’m not sure that the score itself matters other than maybe my ego,” she said. “But when I want to use it, I want to make sure that number is high.”
Figuring out the general features of credit scoring algorithms doesn’t require the kind of intense experiments that Miller did.
FICO’s website has detailed explanations of all the different components of the score, and guides on how to improve your credit score.
And the Consumer Financial Protection Bureau has a whole section of its site dedicated to credit scores and credit reports… including the differences between the two.
For more on consumer rights related to credit scores, check out this summary of the Fair Credit Reporting Act, which lays out what you can legally do about problems with your score.
Thanks to all the listeners who shared their credit score stories with us for this series.
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