How does the snowflake test work? How nice of you to ask. A few years ago, I published a blog post entitled “How to Test if You Have Snowflake Employees”, in which I explained how to tell if your employees are out of the ordinary, or that they are known in management circles as “snowflakes”, because of their extraordinary abilities and accomplishments.
At the time I wrote the post, I assumed that it was intended solely for my family business customers. My luck would have it that this is my most popular post ever, with almost 25k views!
Snowflake test: what is it?
When determining whether your loan is “unusual” enough to be rejected, the snowflake test is used. The test is a means of assessing risk, and it looks at how good loan companies are at predicting defaults.
The snowflake test is based on the idea that if you take out a new line of credit, your credit card company or lender will examine your history and see if it matches that of other borrowers. You are compared to other individuals who have received similar types of loans in the past, and they try to predict who is likely to default on their loan repayments.
The fact that you’ve applied for several different types of loans over the years may give the creditor’s suspicions that you’re trying to game the system. There is a greater chance that you will be rejected if you have taken out too many different types of loans.
The snowflake test is an algorithm used by lenders and credit bureaus to determine whether someone has a good or bad credit history. This is considered a “soft” factor because it is based on the information that is available to most creditors or financial institutions at the time of applying, rather than your actual credit report.
Here’s what the test looks like:
The snowflake test is not well known to most people, but the company you’re applying to is sure to have heard of it. This means they will want to give you a chance – and they will want to make sure you haven’t been rejected elsewhere before investing in your business.
If you want to know if you are a snowflake, you must follow these steps:
Step 1: Determine the total amount of your credit lines. The chances are that you are not a snowflake if you have fewer than five lines of credit.
Step 2: You should calculate the number of cards you hold, including credit and store cards. You will likely get too many high scores if you have more than five cards.
Step 3: Figure out how much debt you are carrying each month. Your credit scores will probably be low if you carry less than $2,500 in monthly debt.
Step 4: Determine your geographical location and current employment situation. Unless you work full time or part time and live in a rural area, your scores will likely be low if you are employed full time or part time.