Nope, it’s not a typo, though there is a nuance to it. So, the other day I got a letter from US Bank telling me the credit limits on my cards have been sharply reduced. It mentioned too many credit inquiries and too many newly opened accounts. No surprise there, I know my sins better than anyone.
What did make my heart skip a beat is the note telling me my TransUnion score is 509. Say what?! My immediate thought was that my identity was stolen and I braced myself for impact. But first I went to the TransUnion link mentioned in the letter to double check the information. Immediately I saw that my credit score is 798, about what it has been for years. I didn’t see any fraudulent activity either. What is going on here?
Upon further investigation, I found out that this is a relatively new credit scoring model called TransUnion Rapid Default Model Version 1. What it does is estimate “bust-out” fraud risk for consumers. The lower the score, the worse you look to TransUnion. Basically, they are flagging folks most likely to max out credit cards and flee the country. I guess that’s me now. YOLO, comrades!
I suppose that’s not really shocking, as I do apply for new credit cards on a regular basis. However, I also have a long history of paying them off, hence my 798 credit score. For now, this model is only used by US Bank, which makes sense, as it’s very sensitive to new inquires.
Implications for the future
Obviously, I did breathe a sigh of relief, as it could have been much worse. If it was a traditional credit score, there would be some serious repercussions. Most companies pull your credit report these days, and it can affect your insurance rates etc. My biggest worry is that other banks will start using this model, which would put those credit accounts at risk. I don’t really much care about my US Bank cards, but I do care about Chase accounts that handle my recurring bills. In addition, it would stink to have my Amex Platinum card closed while I’m about to hit $8k minimum spending for new bonus. I wouldn’t like that at all.
So, what is the best course of action if you get a similar letter? Well, stop getting new credit cards for awhile. For how long? Hard to say, but six months to a year seems prudent. Going after new bonuses is how I accumulate 90% of my points. And it takes a lot of points to cover travel for five people (we often redeem miles on tickets for my MIL). But I certainly don’t want to trash my real credit score in the process, and it’s entirely possible there will be a spillover effect thanks to this new model.
Author: Leana
Leana is the founder of Miles For Family. She enjoys beach vacations and visiting her family in Europe. Originally from Belarus, Leana resides in central Florida with her husband and two children.
@Lynn That’s actually a good point and something I should look into doing. I cancel credit cards with annual fees on a regular basis, but I don’t bother with those that cost me nothing. Unfortunately, that stash is getting bigger and credit lines are probably getting out of control.
@Russ You may have a point. Credit score algorithms work in mysterious ways, but this seems intentional.
Wonder if it would help to just lower credit on several cards?
I’ve run into this twice, once on car insurance and once on homeowners’ insurance. The culprit both times was something called LexisNexis which estimates “bust out” risk as far as I can tell. What’s really happening IMHO is after paying bills on time for 45 years, no missed payments, no late payments, no default judgments, no bankruptcies, they use the system against you. You have access to a lot of unsecured credit due to your past diligence paying bills so the question becomes “how can we squeeze more money out of these good credit risks?” And so we estimate your risk of running up bills and running away despite 45+ years of proving the opposite. It’s a scam IMO, but one that costs me money every year.
@Nancy It’s definitely not a good sign. Let’s hope it doesn’t become popular with other banks.
If that new model spreads to other banks, I’m toast.
@DJG Yes, good points. This falls into “don’t put all of your eggs in one basket” advice category.
I don’t really engage in MS for various reasons, but don’t have an issue with others doing it. As far as everyday spending goes, I earn cash back from my Citi Shop Your Way card due to flood of lucrative offers. While these are technically not points, they benefit our financial bottom line.
This is definitely a sign to slow things down when it comes to new credit cards. We are set for the next few years when it comes to my tentative travel plans, so I’m not sweating it.
There are risks in this hobby, so I try to be transparent and address them.
The best course of action is to not put yourself in a situation where “Going after new bonuses is how I accumulate 90% of my points.” Develop skill set to generate points/miles on roughly a 33/33/33 ratio: One third native spending, one third SUBs/referrals, and one third manufactured spending. While you’ll still end up with a substantial deck of cards, it’s far less likely that banks will have concerns particularly given 2/3 of the velocity is from posted spending.