topic Re: Fair Isaac is NOT fair in Understanding FICO® Scoring

Fair Isaac is NOT fair

militarylife — Wed, 17 Feb 2010 13:47:50 GMT

Our FICO score dropped from 779 to 650. No late payments, No bankruptcies, No public records, and credit history dating back almost 30 years! The reason? Bank of America and Citibank both closed 2 high limit credit cards that had no activity and no balances, with no notice to us. This removed almost 40K in "available credit". Our remaining cards all had about 50% credit usage except one that is used for business and is always close to the maximum due to timing of company reimbursements. All remaining cards dropped our credit limits, so now they are all close to full usage. Every time we make a substantial payment, they drop the credit limit again, which continues to create a loss in "available credit". The sole reason for dropping our score over 100 points, virtually overnight, was the drop in "available credit". Because of the drop in score, all cards raised our interest rates and minimum payments, a mortgage that was in process was suddenly changed, and required a higher interest rate, and higher down payment to close. Let me reiterate. We did nothing to create this problem, except NOT to use available credit. The entire FICO system must be changed to rely more on good payment history instead of "credit usage" as these account closings and CL reductions are creating the problem, and providing the ability of the banks to charge more to good customers. Banking reform may be good, but FICO reporting is what needs to be reeled in.

Re: Fair Isaac is NOT fair

Jazzzy — Wed, 17 Feb 2010 18:52:14 GMT

Hi militarylife, and welcome to the forums. Sorry that it is under these circumstances.

What has happened to you has happened to countless credit card holders who have excellent payment histories. The credit climate has changed drastically in the past few years.

Credit card companies have been closing accounts if the accounts are not used. They want to free that credit up for those who will use it. Also, they have been closing accounts if they see balances on other cards, especially balances that are revolved from month to month. Once this downhill cycle starts, it is difficult to reverse. If you have cards with 50% usage and one that is almost maxed out, that made them nervous...even though you have perfect history.

They are "balance chasing" you down, so things may not improve until all your cards are paid off and you apply for new cards, get credit limit increases, etc. Is it fair to you? It certainly doesn't seem so. The cc companies, however, had to lower risk. There is little risk in borrowers who don't revolve balances. There is more risk in those who do. Unfortunately, you fell in that second category. I know...we get credit, and then if we use too much of that credit, we are penalized. That is our new credit world.

Re: Fair Isaac is NOT fair

militarylife — Wed, 17 Feb 2010 19:05:22 GMT

Hello LynetteM.

I appreciate what you are saying, but the fact is still the same. Fair Isaac judges people on a standard that isn't fair. If I have a 30 year credit history with no late payments, actions taken by banks and cc companies that are out of my control should not count against your credit score. I wouldn't have a problem with closing inactive accounts, or even reducing available balances so that credit card companies aren't nervous that I would suddenly default after having such a long history. My issue is that the system shouldn't penalize those with virtually perfect credit history based on these actions. I did nothing wrong, and have handled my obligations for a long time without a problem. My credit score should reflect a history that I am in control of, not something that I have no control of.

Being military oriented, I know the best way to get the attention of these folks is to file what we call a "Congressional", which means I will write of my dilemma to my congressional representatives. I am also encouraging others to do the same. Once enough people complain in this manner enough, something will happen. The system needs to stop hurting those of us who are responsible, with no late payment histories for decades, and start rewarding such responsible behavior.

Re: Fair Isaac is NOT fair

LilMirth — Wed, 17 Feb 2010 19:06:08 GMT

Hi Militarylife! Welcome aboard!

militarylife wrote:
Our FICO score dropped from 779 to 650. No late payments, No bankruptcies, No public records, and credit history dating back almost 30 years! The reason? Bank of America and Citibank both closed 2 high limit credit cards that had no activity and no balances, with no notice to us. This removed almost 40K in "available credit". Our remaining cards all had about 50% credit usage except one that is used for business and is always close to the maximum due to timing of company reimbursements. All remaining cards dropped our credit limits, so now they are all close to full usage. Every time we make a substantial payment, they drop the credit limit again, which continues to create a loss in "available credit". The sole reason for dropping our score over 100 points, virtually overnight, was the drop in "available credit". Because of the drop in score, all cards raised our interest rates and minimum payments, a mortgage that was in process was suddenly changed, and required a higher interest rate, and higher down payment to close. Let me reiterate. We did nothing to create this problem, except NOT to use available credit. The entire FICO system must be changed to rely more on good payment history instead of "credit usage" as these account closings and CL reductions are creating the problem, and providing the ability of the banks to charge more to good customers. Banking reform may be good, but FICO reporting is what needs to be reeled in.

I'm really sorry to hear about your experience with balance chasing & 'universal default' (when the adverse actions of one or a few lenders starts of snowball effect of adverse action from most or all other lenders). A good many people have had the unfortunate experience of dealing with the same thing as the banks scramble to adjust to the new (and ever changing it seems) financial landscape. Sadly, you were amongst good company in having several large, unused credit lines completely closed. I don't know if you've had a chance to do much reading in the forums, yet, but if/when you do, you'll notice a good number of discussions about how to keep the creditors happy so we can keep our credit lines open, and *hopefully* uncut. It's a never-ending chore, that's for sure! The days of sitting on big credit lines, unused or under used are long gone.

The saving grace in all of this for you is that once your balances are paid your scores should rebound nicely. Your closed accounts will remain on your accounts for up to ten years, still contributing to your solid credit history. When the balances are paid off and the dust finally settles, it won't matter (from a FICO scoring standpoint) if you've lost a lare chunk of available credit, as long as your debt-to-credit ratio is back within a high scoring range (less than 10% reported (as in statement balance) utilization on less than half of your cards).

And, I know that doesn't bring your lost lines of credit back, or adjust the interst rate on your mortgage, but it will put you back in position to get the best rates on a refi (if that's what you want to do), and to go after credit with more stable lenders who may not be as twitchy as BoA & Citi are right now, as they struggle with reinventing themselves. As a matter of fact, I think that (if you haven't done so already), you might find credit love again with a solid credit union, as a good many of us have. Making note of your user name, I just have to ask... Are you eligible to join NFCU? What about USAA (not a credit union, but just as great!)? If you don't currently have membership & you're eligible I think that you may find a much more satisfactory experience in your not too distant future.

Re: Fair Isaac is NOT fair

mattnct — Fri, 30 Apr 2010 02:00:57 GMT

Couldn't agree with this more. I'm in a similar situation - had good credit, made a late payment and it's treated like a bankruptcy. I'm so outraged that I want to file a lawsuit against Fair Isaac for defamation of character. It's not the reporting agencies or my lender to blame; I screwed up and take ownership of that. However, having a low 600's rating for it is just unacceptable. The "fair" scoring is the problem. It's not reasonable and I don't think it accurately reflects my credit worthiness.

Re: Fair Isaac is NOT fair

beamMEup — Fri, 30 Apr 2010 02:26:08 GMT

mattnct wrote:
Couldn't agree with this more. I'm in a similar situation - had good credit, made a late payment and it's treated like a bankruptcy. I'm so outraged that I want to file a lawsuit against Fair Isaac for defamation of character. It's not the reporting agencies or my lender to blame; I screwed up and take ownership of that. However, having a low 600's rating for it is just unacceptable. The "fair" scoring is the problem. It's not reasonable and I don't think it accurately reflects my credit worthiness.

Hi matt,

If you give us some specific information on your situation, we might be able to give you some insight on what happened and how to get your scores back up. These forums are great for picking up that type of information. (And I have to add - make sure your scores are FICO scores as other credit scores can be quite a bit different).

In the meantime, remember it's a mathematical algorithm - just a predictor of creditwortiness based on past recorded behavior. Why do you choose to take it so personally? My scores, and the scores of many others here, have been where yours are.

Some of the following info might be helpful. (Or it just may fan the flames :smileywink:).

Credit score facts & fallacies

Fallacy: My score determines whether or not I get credit.
Fact: Lenders use a number of facts to make credit decisions, including your FICO® score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.

Fallacy: A poor score will haunt me forever.
Fact: Just the opposite is true. A score is a “snapshot” of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for more favorable interest rates. See how improved scores can lead to savings.

Fallacy: Credit scoring is unfair to minorities.
Fact: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.

Fallacy: Credit scoring infringes on my privacy.
Fact: Credit scoring evaluates the same information lenders already look at - the credit bureau report, credit application and/or your bank file. A score is simply a numeric summary of that information. Lenders using scoring sometimes ask for less information - fewer questions on the application form, for example.

Fallacy: My score will drop if I apply for new credit.
Fact: If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called “inquiries”) will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

Give us more info - you'll get lots of good info from the posters here. Hope that's helpful to you.

Re: Fair Isaac is NOT fair

haulingthescoreup — Fri, 30 Apr 2010 03:50:36 GMT

I think that most people know this, but the "Fair" in Fair Isaac is from Bill Fair, the creator of this whole thing along with Earl Isaac. It's not from any claim to be fair.

The slam that occurs with a new late hurts big --I've had one myself --but that point drop is reflecting what the dreary statistics show about the risk of future credit default. However, if you grit your teeth and wait it out, you'll see the points start coming back at specified intervals (i.e., 3 months, 6 months, etc.) And in fact, if you don't have any other negatives after this, it doesn't even really count at all after 2 years. In that sense, it is fair: if you just had a late, you're high-risk for additional ones, because there's no way of knowing why you were late. Did you lose your job? Have you gone on a credit toot and attempted to buy the GDP of a small country? Is the first of many lates to come? And so forth. But if there are no more lates in coming months, then you demonstrate that you are a good credit risk after all, and this is reflected in gradually rising scores.

I'm not attempting to defend the system here. But it is what it is, and understanding how it works can help improve our own credit profile.

Re: Fair Isaac is NOT fair

RobertEG — Fri, 30 Apr 2010 04:57:33 GMT

FICO never has been, and has never claimed to be, a rating of your "credit worthiness." Creditors make that decision, not FICO.

If a creditor wants to see an evaluation of your probability of becoming delinquent on repayment, then they use FICO. If they want more than that, they can get it and use it in addition to your FICO score.

Sure, some lendors, particularly for low-balance credit, may choose to rely primarily or totally on FICO scores in their lending decisions. That reduces the time and cost to them in making credit decisions. But most higher-end credit desisions will cause the creditor to also look at factors that not a part of FICO, such as income, total assets,total debt, spousal income, etc. But such an evaluation is more costly to them. It is their lending decision.

As for the unfairness of reducing ones FICO score based on reduction of CL, FICO has milliions and millions of pieces of data that show, on a general statistical basis, increased % util increases the statistical chance of late payments within the next two years. Thus, it is considered a statistically valid repayment factor used in FICO scoring. Broad statistical anaylsis might be unfair on an individual consumer basis, but that is what FICO is.

Re: Fair Isaac is NOT fair

fast1244 — Fri, 30 Apr 2010 12:16:42 GMT

This certainly seems riduculous, what happened to you. Not to make you feel worse, but to reiterate the point the scoring system is flawed. My wife and just got BK discharge Ch 7 on 2/10/10. One unsecured CC with a $300 limit and her score today is now a 637 after 4 months pay on time and me at 582.??? Her credit history goes back 10 years, mine about 18. This hardly seems fair considering you have played by the rules for so long. I hope your score rebounds...

Re: Fair Isaac is NOT fair

militarylife — Fri, 30 Apr 2010 12:51:19 GMT

I have watched the feedback on this forum for several days since my original post. I must say it has been very interesting, and you can sure tell which posts are done by people who probably work for Fair Isaac and those who are "just folks" like me. I do understand that Fair Isaac is just a "scoring system" and that lenders have the ability to look further as the decision is ultimately theirs. One person posted that the system Fair Isaac uses is unfair, therefore, it reports an unfair number, which then provides the lenders with unfair information with which to work. That's the problem. It's the way they calculate a persons credit worthiness, which IS what they are doing when so many lenders lean on their information. Also, a few facts seem to have become mis-understood as the posts go along. I did NOTHING to deserve this change in my score, except refuse to get myself further in debt by not using a couple of my credit cards. NO lates, NO derogs, NOTHING! In considering payment history, I am perfect. In considering income, I am stable. 40 years in the same industry with very few job changes, and long job histories. Long time home owner. My "sin" was to let 2 high limit cards go unused, which were subsequently closed, reducing my available credit by a significant amount of money. Within days of that happening, all other cards reduced my credit limit to whatever my balance was at the time, all based on the "FICO" score. This meant that now, I am using 100% of my available credit. By the way, one of those cards reduced my credit limit by $7K! It doesn't matter that my excellent credit history will remain for 10 years. Apparently what matters is my credit ratio with "Fair" Isaac, which is being reduced with every large payment I make, and now, a credit card with a large CL an old, but perfect payment history, credit card being closed. Lastly, after dozens of attempts to contact Citibank about this closing, I finally reached someone who claimed to be a "customer service manager". She specifically told me that this decision is final and is based on the drop in my FICO score. Remember, it's well over 700. So, don't tell me that FICO has nothing to do with this. They have everything to do with it. She did tell me that when my score "improves" I can re-apply for a new credit card. I don't think so.

Re: Fair Isaac is NOT fair

beamMEup — Fri, 30 Apr 2010 15:04:11 GMT

First, I'd like to quote from your first post. "Let me reiterate. We did nothing to create this problem, except NOT to use available credit." That's not true, and I believe a good deal of your frustration is in holding on to this false belief.

Based on your statement, "Our remaining cards all had about 50% credit usage except one that is used for business and is always close to the maximum". it's far more likely that your utilization on individual accounts and/or the number of accounts reporting a balance created your issues.

The FICO reason codes are posted as a sticky, or you can google them. They provide some of the most transparent insights into the FICO algorithm. If you pull your credit reports here at myfico.com; you'll find what's hurting your score and what's helping your score. That's a real snapshot into what's happening and will help you understand where your creditors are coming from.

And, I'd like to respond to your comment that "you can sure tell which posts are done by people who probably work for Fair Isaac and those who are "just folks" like me." There's a good knowledge base on these boards. I love being able to come here and pick the brain cells of many individuals who have gone through the school of hard knocks and/or work hard to understand it better, I'm glad they're willing to share their knowledge with me and you. There's not a single post on this thread that was done by people who work for Fair Isaac. Everyone (except the visitors - I can't vouch for them) is a real person like you. With a real job and real family, who voluntarily post here to help their fellow peeps. Even, and maybe especially, those who are flustered by FICO - we all have been at some point.

Sort of reminds me of one of my charming family members, "I'm upset and I want to be upset. Don't bother me with facts!!"

Re: Fair Isaac is NOT fair

marty56 — Fri, 30 Apr 2010 15:54:56 GMT

While many of us (me included) have been hurt by past mistakes and have to wait 7 to 10 years for the mistake to go away, we all have the opertunity to improve our credit score and while we may not like the rules that are used, they are simple to follow and when situations happen in life when we can't, we know what to do to correct the problem.

I don't work for FICO or any of the 3 CRAs and I don't consider myself a fanboy of credit scores or CRAs. I'm just a guy who wants an 800 credit score and to help others not make the same mistakes I did credit wise. My desire for a 800 credit score is both personal and business.

Re: Fair Isaac is NOT fair

militarylife — Fri, 30 Apr 2010 17:13:42 GMT

"Charming" response. Thank you.

Re: Fair Isaac is NOT fair

smallfry — Fri, 30 Apr 2010 18:08:48 GMT

I screwed up royally in the past but my situation was easily avoidable. Some who lose jobs or have extraordinary med expenses well I feel for you. As far as gaming the FICO system it really is not that obtuse. Basically all you need to do is not apply for too much credit. Pay all your bills on time. In this age of the computer there is no excuse to "miss" a payment unless you just don't have the money. Don't let too many credit cards report and don't let too much of your credit limits report. There are a few other tricks but basically those are the guidelines. After having played the game for a few years now I have to say that while the scoring system is not perfect it really is pretty fair.

Re: Fair Isaac is NOT fair

marty56 — Fri, 30 Apr 2010 21:16:08 GMT

The real issue here and one of the major functions of this forum is to help people improve their credit score. Even a wealthy person still has a credit score at in can impact their ability to purchase a cell phone plan or cable TV, or even employment. Unless something bad happens in our life like loosing our job or a big medical expense, none of us here would probably ever consider paying late again and those of us here who have a major derog on their CR wish they didn't have to wait 7 long years for it to fall off. We just have to serve our sentence by waiting if we weren't lucky enough to get parole via GW or the CRA deleting the TLs by mistake.

Everyone has an equal chance to improve their credit or mess it up and even improve it again. That's as fair as anyone could ask in life.

Re: Fair Isaac is NOT fair

happy0510 — Fri, 30 Apr 2010 21:41:55 GMT

marty56 wrote:
The real issue here and one of the major functions of this forum is to help people improve their credit score. Even a wealthy person still has a credit score at in can impact their ability to purchase a cell phone plan or cable TV, or even employment. Unless something bad happens in our life like loosing our job or a big medical expense, none of us here would probably ever consider paying late again and those of us here who have a major derog on their CR wish they didn't have to wait 7 long years for it to fall off. We just have to serve our sentence by waiting if we weren't lucky enough to get parole via GW or the CRA deleting the TLs by mistake.

Everyone has an equal chance to improve their credit or mess it up and even improve it again. That's as fair as anyone could ask in life.

AMEN!! I have been lurking these boards for a few years now. If it weren't for the brilliance of Mr. Fair & Issac, our borrowing system wouldn't be what it is today, imo. This is the first time I have seen someone suggest a class action lawsuit or something negative about FICO scoring. I would assume this would account for .00025% of the entire fico community population which leads me to think...."hmmmmmm".

Re: Fair Isaac is NOT fair

blacklotus — Fri, 30 Apr 2010 22:23:15 GMT

"FICO never has been, and has never claimed to be, a rating of your "credit worthiness." Creditors make that decision, not FICO."

I agree here. I don't think that a person is their Fico Score.

Re: Fair Isaac is NOT fair

GregB — Sat, 01 May 2010 00:28:31 GMT

I agree that a good creditor uses FICO scoring and a lot of other information to determine if the applicant gets or continues to get a loan. These are mostly a step down from the older systems of meeting your banker in person, who made a detailed determination of your credit worthiness. Many creditors are less than "good" and relying even more heavily on your FICO score. This is a problem with the creditors and not the FICO scoring system. Any "score" based system is going to be based upon generalities.

BTW: how many here are furious when Amex, or whoever, wants to do a financial review to get a better idea of credit worthiness instead of just softing your FICO?

What is "fair" about the FICO system is that we can learn how it works and keep ourselves out of trouble. The OP could have leaned more about the system and likely kept himself from having the problems. Unfortunately, life is complicated and this is unlikely to be a priority until a problem happens. It would be nice not to have to keep track of this but the reality is that almost all of us need good credit for a substantial part of our life. If he takes advantage of the knowledge here, he can likely be in a far better position to avoid the next problem. I think it is likely that most of the people on this forum arrived here due to some problem with their credit, even if they did little or nothing to cause it.

I can tell you from the information on this forum that not using a CC from BofA and Citibank was a really good way to get them cancelled. BofA bought up several of the many CCs that I use for business and personal use. I only haveonefrom Citbank - Sears/CBSD. It has a poor interest rate so is no good to carry a balance. It has poor rewards so I don't use it for normal use. I do have to be careful to use it regularly. I would never had known that without this forum.

I understand the OP is angry at the "system", but I think BofA and Citibank are the bad guys here followed by the other creditors that lowered limits JUST because the reduced CL dropped his FICO. It would be nice if FICO added an additional parameter looking at WHO reduced a person's CL. That might also be accomplished by the creditors themselves if they could flag a lowered CL as being done primarily due to the policies of the creditor, having little/nothing to do with the person whose CL is lowered.

Re: Fair Isaac is NOT fair

smallfry — Sat, 01 May 2010 00:51:11 GMT

Don't carry balances. Don't obtain more cards than you can reasonably give enuf use to that the banks are satisfied with. Don't buy garbage you do not need.

Re: Fair Isaac is NOT fair

Jazzzy — Sat, 01 May 2010 03:00:59 GMT

GregB wrote:

BTW: how many here are furious when Amex, or whoever, wants to do a financial review to get a better idea of credit worthiness instead of just softing your FICO?

My husband is self-employed, so we're used to having to provide IRS documents. We had to provide them for PenFed when we got our VISA and to AmEx when we requested a credit line increase after only a couple of months of being a cardholder. Some here in the forums seemed to infer that we should have been insulted. We weren't. It's just business...it's not personal.