Debt collectors call you multiple times a day: they call at work, they call at home, and they even call family members. You have friends who are behind on their bills yet they do not get any of the phone calls. This scenario is quite common. It doesn't just seem like creditors are targeting you, they are targeting you. In addition to computing ‘credit scores’ to predict the likelihood of successful repayment at the beginning of a credit relationship, FICO also computes a ‘collection score’ to help collection companies determine which clients are more likely to repay their debts once they have entered delinquent status.
Therefore, debt collectors may target those who they have calculated to be less likely to pay back the debt according to a variety of factors.
Large collection companies pay FICO to perform analytics to address three main concerns:
- Pinpointing which accounts to focus on to increase collection rates and lower losses. Collection agencies, like all companies, have to choose how to use their limited resources to maximize results. They have a large number of delinquent accounts to pursue and only a limited number of cubicles filled with people or machines equipped to make the calls.
- Minimizing the impact on good customers. Collection agencies do not want to pester and upset people who are inclined to pay on their own. Bothering these people could have a negative impact on future relations.
- Gaining an edge over competitors collecting on the same delinquent accounts. Collection agencies know that there are multiple agencies looking to collect from the same debtor. They are looking for ways to beat the competition to any possible payout.
FICO stands by its collection score product.
FICO claims that its collection score product has the following benefits:
- Increase collections by 20%
- Reduce roll-rates
- Minimize charge-offs
- Improve customer services by using preventative measures to stop upsetting “best” customers with too many collection calls.
Although FICO promotes the benefits of the FICO collection score vigorously, FICO does not share any details with the public regarding how it configures the score or details about the range of the score. In fact, the public is not able to access their own collection score. Remember that only people who have accounts in delinquent status will even be assessed a FICO collection score.
Learn more about FICO.
Why else may creditors be contacting me?
Another reason that you may be experiencing an increase in harassing calls is if you have recently paid a delinquent account. The credit reporting agencies of Experian, Equifax, and Transunion, offer services whereby they inform collection agencies if a client has recently paid an old debt. Collection agencies interpret this action to mean that the client has come into new money and has a desire to settle old delinquent debts. This may result in an influx of debt collection phone calls.
What is FICO?
FICO stands for the company that developed it: Fair Isaac Corporation.
Fair Isaac Corporation was developed back in 1956 by an engineer name Bill Fair and a mathematician named Earl Isaac. Similar to the company FedEx whose full name is Federal Express, Fair Isaac Corporation was often called by its nickname FICO until the nickname became the more commonly used name.
The Company FICO takes information from the three credit reporting agencies and analyzes it to create a score that represents to lenders how likely someone is to pay back additional credit. FICO works closely with Experian, Transunion and Equifax, the companies who provides FICO with the data which make up the credit score. Note that FICO is not the only company which analyzes credit data to generate uniform scores but it is the most common; therefore, many people refer to ‘credit score’ and ‘FICO score’ as one in the same.
Although FICO published its system of credit bureau based credit scoring in the 1980’s, it did not gain momentum and credibility until 1995 when Fannie Mae and Freddie Mac recommended that lenders use FICO scores.
Both creditors and consumers are able to access FICO scores. FICO scores range from 300 to 850 with a higher number representing less risk to lenders and a lower number representing more risk to lenders. Creditors characterize a FICO score of 650-699 as moderate and 700 and above as a good-to-excellent score. Potential buyers with a higher FICO score will have an easier time getting credit and will have better terms and conditions on the money borrowed.
FICO’s Score Chart
The following are aspects that FICO takes into consideration when developing credit scores:
- Payment history (35%)
- Debt/Amounts owed (30%)
- Age of credit history (15%)
- New credit/inquiries (10%)
- Mix of accounts/types of credit (10%)
What other aspects do FICO analyze? The following are other things that FICO analyzes to determine your likelihood of paying back debts:
- Does this person pay on time?
- How much does this person owe?
- How long has this person had a credit history?
- To what extent has this person taken out new credit and what happened with it?
FICO does NOT analyze or take into consideration:
- Marital status
- Where this person lives in the world
- The person’s assets
- The person’s income