Credit Report Puzzle

[cantlogin]

I know a guy who had difficulty getting an approval for a new credit card.

The explanation for the decision to decline the application was listed as a debt to income ratio being too high.

The only monthly payment obligations this guy has are for five credit cards, and the total of those payments is less than $150.

The applicant also has a secured certificate loan from a credit union that has no requirement for any payment until the certificate matures.

When the applicant followed up on the declined application with the bank offering the card it was explained that Experian reported a payment on that certificate loan of several thousand dollars per month. This large payment simply didn't exist. The credit card bank advised that the certificate loan credit union must be incorrectly reporting the loan terms to Experian.

Are you with me so far?

The applicant contacted the credit union holding the certificate loan where they denied reporting any such payment to any credit bureau. It was suggested that the problem must be with Experian reporting incorrectly.

The applicant then acquired a free credit report from Experian. That report, correctly, revealed that the certificate loan existed but clearly indicated that there is no monthly payment obligation. Discussions with Experian provided no possible explanation for the discrepancy between the information that Experian was reporting and the payment information that the credit card bank said they received from Experian.

The credit card bank insists that the monthly payment must be real, but all other sources say that it does not exist.

Having this application for a credit card declined was not any sort of disaster, but it is very puzzling.

Does anyone have any ideas or experiences that might shed some light on this brain teaser?

 

[COcheesehead]

Are they assigning the possibility of the payment even though none has occurred? I thought I heard that that even unused credit cards will still be assigned a monthly payment value to judge credit worthiness.

 

[cantlogin]

You are right about monthly payments being arbitrarily assigned to credit cards, but they are reported by the credit bureau. The Experian credit report does show exactly those calculated credit card obligations but has no such payment for the secured loan. Their credit report indicates no payment for that loan at all.
The credit card bank also insists that the payment information was obtained from Experian.

 

[COcheesehead]

Very odd.

 

[Walt34]

Are they assigning the possibility of the payment even though none has occurred?

I think that is part of it, such as with someone who has a number of credit cards or a HELOC that they are not using, the credit score takes into account "What happens if this guy runs up all his credit in a few days?" and then bases the score on that outcome.

But the whole credit score thing is a bit of a mess, seemingly sort of a mixture of alchemy, astrology, and perhaps a tiny bit of math to make it look legit.

 

[Another Reader]

I think that is part of it, such as with someone who has a number of credit cards or a HELOC that they are not using, the credit score takes into account "What happens if this guy runs up all his credit in a few days?" and then bases the score on that outcome.

But the whole credit score thing is a bit of a mess, seemingly sort of a mixture of alchemy, astrology, and perhaps a tiny bit of math to make it look legit.

I dunno. I have well into the six figures of credit card limits and a similar amount available on a HELOC. I only utilize 1 or 2 percent of the credit card limit and the worst case was 25 percent of the HELOC. My credit score floats near the maximum consistently. I don't think the models assign anticipated utilization to my accounts with that score.

 

[MoneyIsMyHobby]

I dunno. I have well into the six figures of credit card limits and a similar amount available on a HELOC. I only utilize 1 or 2 percent of the credit card limit and the worst case was 25 percent of the HELOC. My credit score floats near the maximum consistently. I don't think the models assign anticipated utilization to my accounts with that score.

Agreed, I've never read that in my research on credit scoring. In fact, it seems the other way around, generally... that having more credit and not using it is somehow seen as a good risk by the reporting agencies (as Another Reader indicates for themselves). Makes no sense to me... the theoretical worst case seems like it would be more logical.

 

[COcheesehead]

The amounts assigned are the minimum payments.

 

[cantlogin]

I dunno. I have well into the six figures of credit card limits and a similar amount available on a HELOC. I only utilize 1 or 2 percent of the credit card limit and the worst case was 25 percent of the HELOC. My credit score floats near the maximum consistently. I don't think the models assign anticipated utilization to my accounts with that score.

The credit score for the declined applicant also hovers near the maximum and that was acknowledged as not being the problem. According to the bank, the entire issue has to do with the calculation of monthly debt payments divided by monthly income.

 

[Another Reader]

The credit score for the declined applicant also hovers near the maximum and that was acknowledged as not being the problem. According to the bank, the entire issue has to do with the calculation of monthly debt payments divided by monthly income.

So the credit score calculated by FICO and the bank's calculation of DTI are very different, and this bank's DTI methodology resulted in a denial. I think I would try another bank.

 

[Backpacker]

I suspect the CC bank is a large institution that may start with Experian but layers in their own calculation in cases that the credit report doesn't show one. I also suspect big bank representative can't see the source data, just their internal loan origination system. Friend should tell big bank to provide him a copy of the credit report they used.

 

[cantlogin]

So the credit score calculated by FICO and the bank's calculation of DTI are very different, and this bank's DTI methodology resulted in a denial. I think I would try another bank.

Maybe that's true.

A different bank isn't an option in this case.
The applicant for the credit card actually has no need for additional credit.
The entire drama was initiated by this particular bank by offering a card with an attractive cash rewards program with a cash incentive for signing up.

 

[cantlogin]

I suspect the CC bank is a large institution that may start with Experian but layers in their own calculation in cases that the credit report doesn't show one. I also suspect big bank representative can't see the source data, just their internal loan origination system. Friend should tell big bank to provide him a copy of the credit report they used.

Your suspicion about the nature of the CC bank is correct.
The guesses (are they guesses, or does that practice actually exist) about internal supplements to credit bureau reports would explain everything.
Every piece of evidence would support that, including the CC banks representative revealing that the report they see has a different format than the report provided to the applicant.

This situation really is very little more than a brain teaser / mystery exercise because the application has finally been approved on appeal.
Due to the applicants long history with the CC bank, the deposits on account at that bank, and the credit score, Underwriting Management granted an "exception" to the absolutely, positively inflexible DTI requirement.

The puzzle is still intriguing though.

Your suggestion about requesting the credit report from the CC bank is an excellent one.
I wonder, are they required to provide that in the case of a credit decline?
Because the approval has now been granted, is that point now moot?

Thanks for your insight. It's really appreciated.

 

[Z3Dreamer]

Had a similar experience while I was still w******. I had good income, great credit score,not much debt outside of a HELOC that I eventually converted to permanent financing. Applied for a CC. Was turned down because of the debt to income ratio. Went to another person at the same bank. Apparently, the person who initially worked the application put down or the system automatically viewed the balance on the HELOC as all due in one month. Once this was corrected, I was a great credit risk.

 

[Another Reader]

Your suspicion about the nature of the CC bank is correct.
The guesses (are they guesses, or does that practice actually exist) about internal supplements to credit bureau reports would explain everything.
Every piece of evidence would support that, including the CC banks representative revealing that the report they see has a different format than the report provided to the applicant.

This situation really is very little more than a brain teaser / mystery exercise because the application has finally been approved on appeal.
Due to the applicants long history with the CC bank, the deposits on account at that bank, and the credit score, Underwriting Management granted an "exception" to the absolutely, positively inflexible DTI requirement.

The puzzle is still intriguing though.

Your suggestion about requesting the credit report from the CC bank is an excellent one.
I wonder, are they required to provide that in the case of a credit decline?
Because the approval has now been granted, is that point now moot?

Thanks for your insight. It's really appreciated.

Your question about providing the credit report in the event of a denial is a good one. My guess is you would get a copy of the original report, not the report that resulted from the bank's application of their algorithm that deemed this person unworthy. The report generated by the algorithm is likely proprietary and not subject to disclosure.

 

[jazz4cash]

.

......the whole credit score thing is a bit of a mess, seemingly sort of a mixture of alchemy, astrology, and perhaps a tiny bit of math to make it look legit.

IOW, SCAM!!!
(Sorry, I can't help myself when it comes to this topic)

 

[Scuba]

I find credit scores frustrating at times. We had an excellent credit score, utilize less than 10% of available credit, and pay everything off in full except our mortgage & HELOC and one 0% credit card every month. Then we decided to get the Amazon VISA and the Target credit card to get 5% off those purchases. We also transferred a balance from one zero % card that was about to come due to a new 0% card with no balance transfer fee to take advantage of using OPM (other people’s money) for free. This balance is relatively small, and we reduced it by $3K or so when we did the transfer, so in total, our balances outstanding actually declined.

Solely as a result of getting 3 new cards in a relatively short period of time, our score declined by about 50 points. All of the other factors (use of credit, payment history, etc.) are rated “excellent” but because of the 3 new cards, our scores went down. Oh well, we aren’t planning on taking out any major loans so I suppose we just have to wait a bit and it will go back up.

Do others who take out new cards to take advantage of free stuff (cash bonuses, discounts, or mileage credits) experience a hit to your credit score? How long does it usually take for your score to go back up, or do you not care what your score is?

 

[jonat]

There are, literally, hundreds of different "scores" available from the credit bureaus, each with slightly tweaked formulas. Also, the report you as a consumer get isn't the same as what the bank gets.

How badly does your friend want this particular card? If not so much, there are other card offers out there, maybe from a bank that is more willing to look at evidence. If this had happened to me I would simply write off that bank forever.

 

[bw5972]

"debt to income ratio" is not the same as "monthly payment to monthly income".
The first, I believe is the issue. I would not extend credit to someone wth $500,000 in debts and an income of $25,000 a year even if their monthly payments were low.

 

[cantlogin]

"debt to income ratio" is not the same as "monthly payment to monthly income".
The first, I believe is the issue. I would not extend credit to someone wth $500,000 in debts and an income of $25,000 a year even if their monthly payments were low.

My understanding is the same as yours, but according to the CC bank the ratio they are interested in, and the issue for this approval, is in fact the monthly debt payments divided by the monthly income.

 

[cantlogin]

There are, literally, hundreds of different "scores" available from the credit bureaus, each with slightly tweaked formulas. Also, the report you as a consumer get isn't the same as what the bank gets.

How badly does your friend want this particular card? If not so much, there are other card offers out there, maybe from a bank that is more willing to look at evidence. If this had happened to me I would simply write off that bank forever.

This situation really is very little more than a brain teaser / mystery exercise because the application has finally been approved on appeal.
Due to the applicants long history with the CC bank, the deposits on account at that bank, and the credit score, Underwriting Management granted an "exception" to the absolutely, positively inflexible DTI requirement.

 

[meierlde]

I find credit scores frustrating at times. We had an excellent credit score, utilize less than 10% of available credit, and pay everything off in full except our mortgage & HELOC and one 0% credit card every month. Then we decided to get the Amazon VISA and the Target credit card to get 5% off those purchases. We also transferred a balance from one zero % card that was about to come due to a new 0% card with no balance transfer fee to take advantage of using OPM (other people’s money) for free. This balance is relatively small, and we reduced it by $3K or so when we did the transfer, so in total, our balances outstanding actually declined.

Solely as a result of getting 3 new cards in a relatively short period of time, our score declined by about 50 points. All of the other factors (use of credit, payment history, etc.) are rated “excellent” but because of the 3 new cards, our scores went down. Oh well, we aren’t planning on taking out any major loans so I suppose we just have to wait a bit and it will go back up.

Do others who take out new cards to take advantage of free stuff (cash bonuses, discounts, or mileage credits) experience a hit to your credit score? How long does it usually take for your score to go back up, or do you not care what your score is?

I just got 1 new card and the score went down about 20 points but a year later it has recovered.

 

[king smoothie]

I find credit scores frustrating at times. We had an excellent credit score, utilize less than 10% of available credit, and pay everything off in full except our mortgage & HELOC and one 0% credit card every month. Then we decided to get the Amazon VISA and the Target credit card to get 5% off those purchases. We also transferred a balance from one zero % card that was about to come due to a new 0% card with no balance transfer fee to take advantage of using OPM (other people’s money) for free. This balance is relatively small, and we reduced it by $3K or so when we did the transfer, so in total, our balances outstanding actually declined.

Solely as a result of getting 3 new cards in a relatively short period of time, our score declined by about 50 points. All of the other factors (use of credit, payment history, etc.) are rated “excellent” but because of the 3 new cards, our scores went down. Oh well, we aren’t planning on taking out any major loans so I suppose we just have to wait a bit and it will go back up.

Do others who take out new cards to take advantage of free stuff (cash bonuses, discounts, or mileage credits) experience a hit to your credit score? How long does it usually take for your score to go back up, or do you not care what your score is?

Usually each time you apply for a credit card your score dips a bit, maybe 10 to 15 points. Multiple new applications magnify the dip, although how much depends on the super secret formula. It generally takes about 6 months for full recovery. People who churn credit cards watch this closely. When you close an account there is a similar impact. I care about my score, but I don't sweat a 20 point swing. 50 is more than I prefer. Note that many financial institutions offer a free credit score that is a Vantage Score, which most lenders don't use and can be off of the FICO score by as much as 30 to 50 points. There are different versions of the FICO score as well. Lenders may use a different one - which weights your debt history differently - based on the type of debt you are applying for.

 

[gayl]

I just got 1 new card and the score went down about 20 points but a year later it has recovered.

I paid off my car & mine also went down [emoji107] 20 pts. Hasn't recovered and experian says it's bc I have no debt. I can live with that

 

[Scuba]

Usually each time you apply for a credit card your score dips a bit, maybe 10 to 15 points. Multiple new applications magnify the dip, although how much depends on the super secret formula. It generally takes about 6 months for full recovery. People who churn credit cards watch this closely. When you close an account there is a similar impact. I care about my score, but I don't sweat a 20 point swing. 50 is more than I prefer. Note that many financial institutions offer a free credit score that is a Vantage Score, which most lenders don't use and can be off of the FICO score by as much as 30 to 50 points. There are different versions of the FICO score as well. Lenders may use a different one - which weights your debt history differently - based on the type of debt you are applying for.

Thanks for this explanation. We aren’t planning on applying for any credit anytime soon, but I have to admit I was surprised that 3 new cards within a few months, all with relatively low limits, would cause such a drop for us. Our score dropped 40-50 points.