Credit Scores Migrate Over Time

by Guest Contributor 2 min read June 8, 2011

Score migration has always been a topic of interest among financial institutions. I can remember doing score migration analyses as a consultant at Experian for some of the top financial institutions as far back as 2004, prior to the economic meltdown. Lenders were interested in knowing if I could approve a certain number of people above a particular cut-off, and how many of them will be below that cutoff within five or more years. Or conversely, of all the people I’ve rejected because they were below my cut-off, how many of them would have qualified a year later or maybe even qualified the following month. We’ve done some research recently to gain a better understanding of the impact of score migration, given the economic downturn.

What we found was that in aggregate, there is not a ton of change going on. Because as consumers move up or down in their score, the overall average shift tends to be minimal. However, when we’ve tracked this on a quarterly basis into score bands or even at a consumer level, the shift is more meaningful. The general trend is that the VantageScore^® credit score “A” band, or best scorers, has been shrinking over time, while the VantageScore^® credit score “D” & “F” bands, lower scorers, has grown over time. For instance, in 2010 Q4, the amount of consumers in VantageScore^® credit score A was the lowest it has been in the past three years. Conversely, the number of consumers falling into the VantageScore^® credit score “D” & “F” bands are the highest they have been during that same time period.

This constant shift in credit scores, driven by changes in a consumer’s credit file, can impact risk levels beyond the initial point of applicant approval. For this reason, we recommend updating and refreshing scores on a very regular basis, along with regular scorecard monitoring, to ensure that risk propensity and the offering continue to be appropriately aligned with one another.

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