Machine learning techniques inform credit scores

Mention machine learning these days and it conjures up anything from self-driving cars to the robot apocalypse.

Here’s the truth: machine learning has been in use in the financial services industry for many years. That said, using what is essentially just a mathematical technique to develop a credit scoring model is actually unique for a tri-bureau credit scoring model.

In fact, for our latest model, VantageScore 4.0, our data scientists leveraged machine learning techniques in their development of scorecards for those with dormant credit histories (i.e., those with scoreable trades but with no update to their credit file within the last six months).

But what is machine learning and what did our data scientists actually do? Glad you asked!

When seeking to improve the performance of credit score models, typically two approaches are used: incorporate additional data (e.g., rent, utility and cell phone information) or use enhanced mathematical techniques to ascertain the predictive relationships within the existing behavioral credit data. We simply hooked up these fundamental techniques with massive computing capability to produce significantly improved predictive performance.   

Normally, a credit scoring model is built using attributes that only incorporate one or two dimensions of the existing behavioral credit data. This approach is generally adequate when a model is used to score those with conventional credit histories, i.e., thick files which contain, for example, a combination of auto loans, credit cards, etc. But for those with thin files (or those who have not used credit within the last six months), this approach to credit does not adequately measure their risk of default or otherwise provide enough predictive power. That’s where machine learning comes in handy.

For these thin file consumers, multiple behavioral dimensions may be evaluated to ascertain predictive relationships that may be otherwise ignored but may be used to produce a model that is both predicative and able to score these consumers. But machine learning must be used to both discover those relationships and to dig deeply into them to yield improved performance. Even the fantastic data scientists at VantageScore don’t have enough bandwidth to combine the myriad of behavioral relationships needed to create these attributes, so they used a machine learning technique – an algorithm – to do the data mining for them.

Once these relationships were discovered, that’s when the data scientists went to work. The highest performing relationships, or “nodes” in data speak, were identified and combined to provide an estimate of the optimal predictive performance. The goal then became to convert these unstructured high-performing nodes into structured, static attributes that can be reason coded and incorporated into a credit scoring model that is 100% compliant.

Underneath my signature is a really great illustration of this process. Obviously, it is a simplified explanation of how VantageScore 4.0 uses machine learning to build scorecards for the consumers that other models consider to be unscoreable. To learn more, please download and read our recent whitepaper that digs in deeper into the topic of the machine learning techniques.

But the results speak for themselves: According to our latest validations study, VantageScore 4.0, with the use of machine learning, outperforms VantageScore 3.0 (which did not leverage machine learning) by 10% for new account originations and 4.2% for existing account management trades.

More on our model validations results next month. For now, we hope our July newsletter offers you some light beach reading: a “Did You Know” article about how most consumers actually have great credit scores, tips for small business entrepreneurs, and the latest results from our annual credit knowledge survey with the Consumer Federation of America.


Barrett Burns

CEO and President, VantageScore Solutions

Machine Learning

Most people have great credit scores

by John Ulzheimer

Credit scores have been commonly used by consumer lenders for almost 3 decades now. They’re used for mortgage loans, credit cards, auto loans, student loans and everything else in between. It’s smart personal finance practice for consumers to work hard to earn and maintain solid credit scores. And, based on new data, it appears they’re doing just that.

In January 2018 Experian released their 2017 “State of Credit” survey, which indicates that consumers are scoring the best they have since 2012.  And in June 2018, VantageScore Solutions released credit score data on more than 12.5 million U.S. consumers which indicates that an enormous percentage of those consumers have elite credit scores.

According to the Experian data, the average credit score nationwide is now 675 and Minnesota residents have the highest average score at 709 (one of 4 states with average scores at or above 700[1]). According to the VantageScore data, 21% of mainstream consumers have scores above 800 and 55% have scores above 700.[2]   

While these impressive statistics might seem surprising, they actually are not. The average credit score has always been in the neighborhood of 700 and the percentage of consumers who have the truly elite credit scores (above 760) has consistently been above 35%. On the other hand, the percentage of consumers who have credit scores at or below 600 is an equally surprising 20%, according to the VantageScore data.

What Does This Mean?

Credit scores only consider the information on your credit reports, nothing more and nothing less. Good credit scores mean clean credit reports; whereas, poor credit scores mean damaging information on your credit reports. What these studies indicate is that most consumers maintain decent credit reports.

With a little more than half of the U.S. mainstream population scoring above 700, the doors of opportunity for economic investment are open to many. Generally speaking, a credit score above 760 earns the lowest interest rate on a mortgage loan. And credit scores at or above 720 get the lowest interest rates on auto loans. And although most people certainly can get a credit card with almost any credit score, the most attractive deals are reserved for consumers who have scores well into the 700s.

The good news is that studies have shown that once people experience a good credit score, they tend to keep their good score, unless they experience some sort of life altering event (e.g., loss of job or a divorce).

For those who have a credit score lower than 700, fear not. There is still opportunity on the road ahead, but often it comes at a steeper cost (i.e., interest rate). Which is why it’s important to continue paying your bills on time and avoid derogatory credit entries to build and sustain a solid credit score.

Also know that it’s certainly not the only factor in determining a score. For example, in the VantageScore credit scoring system, your “Payment History” represents about 40% of your total credit score. And while 40% sounds like a lot, it also means that 60% of your credit score has nothing to do with whether or not you pay your bills on time.

For more information on how to improve a credit score, visit:

1 Based on the VantageScore 3.0 scoring platform.

Based on the VantageScore 4.0 scoring platform.

Disclaimer: The views and opinions expressed in this article are those of the author, John Ulzheimer, and do not necessarily reflect the official policy or position of VantageScore Solutions, LLC.

Give your small business a check-up

A challenge for any entrepreneur is getting access to capital. If you’re like many, you’re constantly looking for ways to reduce expenses and free up cash flows so you can be ready for anything, whether it’s a slow season or an opportunity to expand.

Use the following tips to boost cash flow to your business:

Dust off your business plan: No doubt when you started out in business, you were eager to put your vision to paper. Most entrepreneurs get busy with the day-to-day pressures of deadlines, and that vision can recede into the background. Schedule some time with your board members or business partners to revisit and update the business plan. Now that you understand the realities of your market, you should have plenty of ideas on creating the 2.0 version of your enterprise. When finished, it’s important to not allow it to gather dust again. Set goals and schedule check-in meetings with your team to make sure everything’s on track.

Update your budget: The nature of entrepreneurship is being agile in the face of change. Market trends, price changes from vendors and suppliers, effects of new laws and ordinances, even road construction are variable forces that can send anyone’s budget into a new direction. That’s why your budget isn’t ever going to be a spot-on prediction. Think of it as a plan. If you stay on top of it, you can spot the trends early and make adjustments right away so you can reap the full advantage — or head off problems before they become unmanageable.

Check your credit score: If you’re planning to raise capital to expand or make improvements in the next year, checking in on your credit score is an important first step you can take several months before you apply for the loan. Even if you have a business credit score, certain business loans still require a look at your personal credit score, especially if you’re a sole proprietorship. Visit to find free resources to learn your credit score. There’s also helpful information on what factors influence your score and things you can do that can help increase it over the coming months to help you get the best rate possible.

Create a tax strategy: The tax break Congress passed in December will save small business owners 20 percent on their tax bill this year. In the coming year, small business owners have many opportunities to capture more tax savings with the right plan and strategy. For example, if you’re planning a large equipment purchase, you may find yourself in a better tax bracket in 2019 if you time it before Dec. 31, rather than waiting until the following year as planned. Have a meeting with your accountant to discover more ideas.

Pay down debt: One way to use the windfall of your 20 percent tax savings is to pay down revolving loan debt. Doing so is a great way to raise access to working capital should you need it down the line. Depending on the source of credit, reducing your credit-to-balance ratio is one factor that could raise your credit score. Before you do so, make sure you have enough cash flow to meet your expenses.

Improve accounts receivable: If your business extends lines of credit to your customers, it may be worthwhile to implement a credit check policy on all new customers. Knowing they’re creditworthy before the fact can help you create the appropriate plan for them and protect your business. Credit reporting is also an effective way for even a small business owner to let customers know they are serious about collecting what’s owed. In the end, you’ll get paid faster and increase cash flow.

The life of an entrepreneur means things can change drastically on a dime. A thorough check-in with your finances can put you in the best position for success. To learn more about the tools and solutions offered by VantageScore, visit

Survey says!:
Consumer credit knowledge rises

Over the past four years, an increasing number of consumers have obtained their credit scores and know much more about credit scores than others do.

Free Online Credit Score Quiz ( Has Been Taken by Many Consumers to Upgrade Their Credit Score Knowledge.

Washington, D.C. – The eighth annual credit score survey, released by the Consumer Federation of America (CFA) and VantageScore Solutions, LLC, shows that those recently obtaining their credit scores know much more about scoring than do those who have not obtained their scores.

The survey also reveals that, over the past four years, the percentage of consumers who have recently obtained at least one credit score has risen significantly. The proportion who said they “obtained or received any credit scores” in the past year has risen — from 49 percent in 2014 to 57 percent in 2018.

According to the survey, potential borrowers are more likely to have obtained their score than non-borrowers. Seventy percent of those who intend to purchase a consumer or mortgage loan in the next year, compared to 57 percent who were not planning to borrow, said that they had obtained a credit score in the past year. And not surprisingly, these potential borrowers know somewhat more about credit scores than non-borrowers, with scores on individual questions that are typically 5-10 percentage points higher.

“The rising percentage of consumers who have obtained their credit scores is encouraging because those who have accessed their scores know much more than those who have not,” noted Steve Brobeck, executive director, CFA. “It is also encouraging that those who plan to borrow are more likely to have obtained their credit scores and know more about scores than non-borrowers,” he added.

To improve their credit knowledge, nearly 200,000 individuals have taken an online credit score quiz at that is developed and maintained by CFA and VantageScore. is one of the only resources that is free from commercial conflicts and created with both industry and advocacy input,” said Barrett Burns, president & CEO, VantageScore Solutions. “Whether you are an educator or a consumer, it’s a terrific resource that can enable financial empowerment.”

Other key survey findings include:

  • A large majority correctly identify key factors used to calculate credit scores but have an incomplete understanding of all the factors.
  • Similarly, a large majority correctly indicate some, but not all of the ways to raise credit scores.
  • Over the past four years, even though the percentage recently obtaining their credit reports (versus their credit scores) in the past year has increased (from 29 percent in 2014 to 36 percent in 2018), the percentage who say it is important to check these reports has declined (from 72 percent in 2014 to 67 percent in 2018).

The survey was commissioned by CFA and VantageScore and undertaken by ORC International, which from May 31 to June 3, 2018, interviewed 1005 representative Americans by cell phone and landline. The survey’s margin of error is plus or minus three percentage points.

Those Recently Obtaining Their Credit Score Know Much More About Scores Than Do Those Who Have Not

Those who say they have obtained at least one credit score in the past year are much more likely to say that their knowledge of scores is good or excellent than those who have not (68% vs. 45%).

In fact, those obtaining their scores recently do know more, as the table below reveals:



Credit card issuers use scores               

94% 76%

Mortgage lenders use scores                          

93 74

Missed payments lower scores                        

94 80

High credit card balances lower scores             

88 74

Consumers have more than one score             

80 53

700 is a good credit score                               

91 74


Consumer Understanding of Factors Used to Calculate Credit Scores and How They Can Raise a Lower Score Is Incomplete

Large majorities correctly identify three key factors used to calculate credit scores – missed payments (86%), high credit card balances (81%), and personal bankruptcy (79%). 

But significant minorities also incorrectly think that age (41%) and marital status (38%) are used in this calculation. And majorities incorrectly believe that tax liens (64%), medical collection accounts less than six months old (62%), and civil judgments (63%) are used in the computation of credit scores.

Similarly, majorities correctly identified individual actions that help raise a low credit score or maintain a high one – make all loan payments on time (89%), keep credit cards balances under 25 percent of the credit limit (72%), and do not open several credit card accounts at the same time (66%). Yet, little more than half of respondents (56%) correctly identified all three factors.

And, only 21 percent know that on a $20,000, 60-month auto loan, borrowers with a low score would typically pay more than $5,000 in interest charges than would a borrower with a high score.

How Consumers Can Raise Their Credit Scores

In brief, consumers can raise their credit scores or maintain high scores by:

  • Consistently making their loan payments on time every month. A late payment may lower one’s credit scores by dozens of points.
  • Using a small portion of the credit available on a credit card. In general, the higher the percentage of a credit line that is drawn down, the lower one’s credit scores.
  • Paying down credit card debt rather than just shifting it to another credit card or to a home equity loan.
  • Regularly checking one’s credit reports to make sure they are error-free. This can be done for free annually by contacting or by calling 800-322-8228.



5 Questions With…Penny Pinchin’ Mom

In 2007, Tracie Fobes and her husband set out on a journey –they were determined to work themselves out of $37,000 debt. In 27 months,“Feb2018” they accomplished just that. Today, Tracie is the owner and founder of the blog, whose devoted community of 600,000 Facebook fans, 18,000 Twitter followers, and 77,000 email subscribers come to her for tips on everything from getting out of debt to saving on groceries. She also has been featured on Good Morning America, The New York Times, US News and World Report, BetterTV and more. Amid her thriving blog business and raising three children, Tracie spoke to VantageScore about her success as a freelancer and small business entrepreneur. 

1. How did you know you were ready to turn your side hustle into your main hustle? What were the signs?

For me, I did not even realize you could make money blogging. I just did it for the passion. However, when I received my first $60 check after a few months of work, it dawned onto me that this may be a better opportunity than I ever realized. At that moment, I began to look at my hobby blog as a business.

2. What is something all aspiring freelancers or small business owners should ask themselves before taking the leap into the entrepreneurial world?

They must know their goals. What do they want to achieve? Is it to make a certain income, or help people, or just leave the corporate world behind. Before you know where you want to go, you need to figure out why you want to get there.

3. What was the biggest challenge you faced when developing your small business? What is the biggest reward?

Setbacks from partners caused me a lot of stress, but ended up being the best thing that happened to me. Those who do not understand business failures have no idea what to do when it happens to them. The biggest reward is the countless emails I get from the readers whom I help.  You can’t place a value on that.

4. On top of your business endeavors, you’re a mother. Can you describe the challenges and rewards of doing both simultaneously?

It is like having 25 balls in the air all at the same time. Sometimes, you are going to drop one or two, but you have to decide which is the most important at this very moment. I find that more companies are sympathetic to the mom who is running a business and taking care of a family. They get why you are doing this and tend to be more flexible with some things.  

The best part of working as a mom is when my kids are sick and that there is no worry about who will take off work to stay home with them. I can also go to the school parties and field trips. I have the opportunity to be more present and put on my mom hat when needed.

5. What is your readers’ biggest misconception about credit scores?

That they matter more than they do. I stopped worrying about my number and just lived a life in the way that made sense. I took responsibility for my financial decisions and actions and the result ended up being a positive score…. but I did not make a change just to get a better score.

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