Harmful backdating hypothetical

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CarefulBuilder14
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Harmful backdating hypothetical

Postby CarefulBuilder14 » Sat Oct 11, 2014 10:01 pm

It struck me that under certain circumstances, having backdating could potentially harm a person's credit terms.

Imagine CarelessBuilder got an Amex in 1992, got into a lot of debt, and defaulted on it a few months later.

Then CarelessBuilder applied for an Amex 20 years later in 2012 and got approved. The card backdated to 1992.

CarelessBuilder then wants a card from another lender (let's say Chase). Chase does a HP and will come to one of the following conclusions:

A) CarelessBuilder has a 2-year old Amex.

B) CarelessBuilder has a 22-year old Amex.

C) CarelessBuilder had an Amex in 1992, but then did something so awful with his credit that from at least 2004 (ten years ago) to 2012, Amex wanted nothing to do with him. After all, with no-AF card options, why would CarelessBuilder sever all ties with Amex unless he had another great card? Any good history with Amex or another lender since 2004 would appear on the report. The bad behavior was a long time ago, but it can still look bad.

Without the effect of backdating, Chase could consider the possibility that CarelessBuilder never had credit, used a debit card for everything, had a prepaid or employer-provided phone, and maybe was sub-letting or sharing an apartment with someone with good credit. Chase might like these traits in a borrower - at least it might look better than someone with a messy (though very old) credit history.

But with backdating, Chase could wonder what mess was going on in the past.
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djrez4
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Postby djrez4 » Sat Oct 11, 2014 10:47 pm

I don't know how Chase would conclude anything other than B). Any negative information would have fallen off long ago. There's no way they could draw any conclusions from a backdated Amex other than the fact that you have a backdated Amex.
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CarefulBuilder14
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Postby CarefulBuilder14 » Sat Oct 11, 2014 10:54 pm

djrez4 wrote:I don't know how Chase would conclude anything other than B). Any negative information would have fallen off long ago. There's no way they could draw any conclusions from a backdated Amex other than the fact that you have a backdated Amex.

Well, there would be no payment history, credit high, statement balance, etc. before 2012 - so A seems certainly possible.

You don't think it would be suspicious that someone would get an Amex, close it voluntarily, and then go for many years without one, only to open one up again? And that this person would not have several other prime cards in the meantime? (Paragraph edited)

After all - once someone is in primeland, why go back to debit for 20 years?

Edit: It's not the presence of harmful information - it's the absence of other good information that you'd expect to see - but is suspiciously absent!
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Postby otter » Sat Oct 11, 2014 11:10 pm

CarefulBuilder14 wrote:It struck me that under certain circumstances, having backdating could potentially harm a person's credit terms.

Imagine CarelessBuilder got an Amex in 1992, got into a lot of debt, and defaulted on it a few months later.

Then CarelessBuilder applied for an Amex 20 years later in 2012 and got approved. The card backdated to 1992.

CarelessBuilder then wants a card from another lender (let's say Chase). Chase does a HP and will come to one of the following conclusions:

A) CarelessBuilder has a 2-year old Amex.

B) CarelessBuilder has a 22-year old Amex.

C) CarelessBuilder had an Amex in 1992, but then did something so awful with his credit that from at least 2004 (ten years ago) to 2012, Amex wanted nothing to do with him. After all, with no-AF card options, why would CarelessBuilder sever all ties with Amex unless he had another great card? Any good history with Amex or another lender since 2004 would appear on the report. The bad behavior was a long time ago, but it can still look bad.

Without the effect of backdating, Chase could consider the possibility that CarelessBuilder never had credit, used a debit card for everything, had a prepaid or employer-provided phone, and maybe was sub-letting or sharing an apartment with someone with good credit. Chase might like these traits in a borrower - at least it might look better than someone with a messy (though very old) credit history.

But with backdating, Chase could wonder what mess was going on in the past.


You're putting more thought into this than 99.9% of credit analysts. I know there was a lengthy discussion about backdating a while back... you made your opinions pretty clear- if you were a credit underwriter in a galaxy far, far away, you would no doubt be carefully digging through Yoda's 900 year credit history to see if there were any youthful indiscretions when he was a young padawan. Heck, for all I know, I could have been your template for "CarelessBuilder" since it is remarkably close to my history.

In the 21st century, most credit decisions are made by computer anyway, and I seriously doubt the algorithm most card issuers use would draw the picture as you did(although I'm sure some probably can recognize a backdated Amex and discount the impact of said accounts).

How about those apps which require manual underwriting? Well, the reason why bad credit goes away after seven years (or ten in some cases) is because most people make stupid mistakes when they are younger and (hopefully) get wiser with age. That's why most credit analysts don't speculate about things they don't know about for sure. They want to know how you've been managing credit recently, not how you managed it 25 years ago, because that's the best way to determine how you will manage the credit they might give you. Besides, Amex is not First Premier Bank- they have a reputation for being strict in their underwriting and being unforgiving of those who screwed them in the past. Most experienced underwriters are probably aware of Amex backdating, but I doubt they think a whole lot about why "Careless Builder" has a backdated Amex with a small CL. Having an Amex in your credit file reporting as "paid as agreed" is probably seen as a good thing regardless of the history with Amex.
In my Wallet:
  • Amex PRG NPSL[3-14, bd 91]
  • Sallie Mae MC $8000[1-14]
  • Chase Freedom $4700[1-14]
  • Discover It $2750[8-13]
  • BoA UCF Alumni Cash Rewards $5000 [3-15]
Sometimes in my Wallet:
  • GM BuyPower WEMC $5000[9-14]
  • Wells Fargo Propel 365 Amex $7000[4-14]
  • Barclaycard Arrival WEMC $7000[3-14]
  • BoA Better Balance $3000[2-15]
In my sockdrawer: Amex BCE $1000[10-13, bd 91], OCCU Duck $10000 [11-13], The Sportsman's Guide Visa $8000[8-14], Chase Slate $4000 [9-14]Delta Gold Amex $2000 [2-15 bd 91], Diners Club MC $20000 [10-14] Commerce Bank Visa $2000 [3-15] Citi Double Cash $1000 [3-15]
Total CL: $90450

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Postby notcool » Sat Oct 11, 2014 11:11 pm

I agree - only choice b makes sense. Also if Amex approves a card in 2012 that backdated twenty years , I think it safe to assume that Amex finds the customer to be credit worthy in 2012. Presumably chase, citi, and other issuers will also be reasonably likely to find the applicant to be credit worthy, whatever the reason for the backdated card and gap in credit history may be. This is an interesting scenario to be sure , though!!!

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otter
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Postby otter » Sat Oct 11, 2014 11:25 pm

CarefulBuilder14 wrote:Well, there would be no payment history, credit high, statement balance, etc. before 2012 - so A seems certainly possible.

You don't think it would be suspicious that someone would get an Amex, close it voluntarily, and then go for many years without one, only to open one up again? And that this person would not have several other prime cards in the meantime? (Paragraph edited)

After all - once someone is in primeland, why go back to debit for 20 years?

Edit: It's not the presence of harmful information - it's the absence of other good information that you'd expect to see - but is suspiciously absent!


Perhaps "Careless Builder" joined the Dave Ramsey organization and cut up all his cards because credit (of course) is evil. Perhaps he had a vision from God to go out into the world for seven years and became a missionary in Africa. Perhaps he had a soap-opera style death complete with body... and then came back (after suffering amnesia and living another life) just in time to stop his wife's wedding to the man who made him "disappear" and faked his death...

There's a reason why underwriters look at your credit report and don't speculate about what's not there... because that's what they get paid to do- determine credit worthiness based on what's in there, not what isn't in there.
In my Wallet:
  • Amex PRG NPSL[3-14, bd 91]
  • Sallie Mae MC $8000[1-14]
  • Chase Freedom $4700[1-14]
  • Discover It $2750[8-13]
  • BoA UCF Alumni Cash Rewards $5000 [3-15]
Sometimes in my Wallet:
  • GM BuyPower WEMC $5000[9-14]
  • Wells Fargo Propel 365 Amex $7000[4-14]
  • Barclaycard Arrival WEMC $7000[3-14]
  • BoA Better Balance $3000[2-15]
In my sockdrawer: Amex BCE $1000[10-13, bd 91], OCCU Duck $10000 [11-13], The Sportsman's Guide Visa $8000[8-14], Chase Slate $4000 [9-14]Delta Gold Amex $2000 [2-15 bd 91], Diners Club MC $20000 [10-14] Commerce Bank Visa $2000 [3-15] Citi Double Cash $1000 [3-15]
Total CL: $90450

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CarefulBuilder14
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Postby CarefulBuilder14 » Sat Oct 11, 2014 11:47 pm

Well, since even the experienced human analysts (I assume) don't get bonuses according to the performance of their 'customer portfolio' it's true they probably would not put in as much effort. I can see them taking view A or B, but I agree C is pretty unlikely. It's just not worth the effort for them, since it's not their personal money they are lending.

The Dave Ramsey / missionary explanation is plausible.
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Postby flan » Sun Oct 12, 2014 8:45 am

otter wrote:In the 21st century, most credit decisions are made by computer anyway, and I seriously doubt the algorithm most card issuers use would draw the picture as you did(although I'm sure some probably can recognize a backdated Amex and discount the impact of said accounts).

How about those apps which require manual underwriting? Well, the reason why bad credit goes away after seven years (or ten in some cases) is because most people make stupid mistakes when they are younger and (hopefully) get wiser with age. That's why most credit analysts don't speculate about things they don't know about for sure. They want to know how you've been managing credit recently, not how you managed it 25 years ago, because that's the best way to determine how you will manage the credit they might give you. Besides, Amex is not First Premier Bank- they have a reputation for being strict in their underwriting and being unforgiving of those who screwed them in the past. Most experienced underwriters are probably aware of Amex backdating, but I doubt they think a whole lot about why "Careless Builder" has a backdated Amex with a small CL. Having an Amex in your credit file reporting as "paid as agreed" is probably seen as a good thing regardless of the history with Amex.


It's pretty easy to spot a recently opened amex: they report payment history, so you'd have an account opened in 1992, but only 24 months of payment history. Once the card gets older, it's harder, since only 60-81 (I have no idea why 81) months of payment history is on the report. But age of accounts has a diminishing impact as it gets longer, so it matters less.

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Postby CarefulBuilder14 » Sun Oct 12, 2014 10:59 am

flan wrote:It's pretty easy to spot a recently opened amex: they report payment history, so you'd have an account opened in 1992, but only 24 months of payment history. Once the card gets older, it's harder, since only 60-81 (I have no idea why 81) months of payment history is on the report. But age of accounts has a diminishing impact as it gets longer, so it matters less.


Good to know. I thought payment history would stay on for 10 years after each payment, or possibly go back all the way to 1992. 5 to 6.75 years is still a pretty long payment history, though.
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Postby takeshi » Mon Oct 13, 2014 10:53 am

CarefulBuilder14 wrote:But with backdating, Chase could wonder what mess was going on in the past.

My situation 1.5 years ago was pretty similar to your hypothetical. MSD in 1998. BK and no AmEx cards since ~2000. 2 new AmEx cards in 2013 backdated to 1998. I've had no problems with Chase.



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