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7 years is Way too Da## Long!

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mitchblue
Valued Contributor

Re: 7 years is Way too Da## Long!


@Anonymous wrote:

It may not impact the score for more than a couple of years, but it will still be visible to a lender that actually looks at his report.  For something like an online CC app it won't matter at all, but if he goes for a mortgage at 24 or 25 years old and a potential lender takes some time to actually look at his report while the late may not impact his FICO score at the time, the lender will certainly be able to see that he was late. 


Mortgage lenders are as lazy as others when looking at someone's CR. And a 30 day late 3 years prior won't matter a bit.

FICO® 8 Scores 821 FICO® 9 Equifax 826 (Updated 02-7-23)
Message 31 of 64
Anonymous
Not applicable

Re: 7 years is Way too Da## Long!

Some do, some don't.  I would think the probability of someone looking closer at someones report that's going for a $200k-$300k mortgage would be greater than someone scooping up a run of the mill CC, generally speaking, but you never know.

Message 32 of 64
grillandwinemaster
Valued Contributor

Re: 7 years is Way too Da## Long!


@pipeguy wrote:

@grillandwinemaster wrote:

The fact that the credit reporting agencies in essence work for the banks and other lending institutions goes without say. I'm not debating that payment history should not be included. Without a doubt, payment history absolutely must be included. What I am contesting is the length of time before exclusion of negative information.

 

snip...

 

 

As an example, the insurance industry has chosen a 3 year exclusion period for "minor" traffic infractions. Why the different exclusionary periods? Why not leave a basic speeding ticket on our report for 7 years? The difference is that big banks and other financial institutions have deep pockets and can afford to pay lobbyists to enact favorable legislation for them. 

 

 


Not going to discuss this in the forum due to forum rules on politics - but I will say this statement is completely UN-true having to due with FICO scoring.

 

Fair Isaac Corporation was founded in 1956, not by banks. FICO provides 50+ different flavors of scoring and sells their risk modeling to anyone interested including consumers, lenders, debt collectors, employers, etc. etc. The reason FICO scoring is pretty much universal today is because its accurate in predicting risk - if other models such as Vantage Scoring were better the "industry" would switch and they haven't.

 

As far as the 7 year reporting, it’s usually about 6.5 years and it's allowed to be 7.5 years (bankruptcy 10 years, age of accounts up to 10 years, even if closed) and more importantly the effects of negatives are very much weighed toward early occurrence meaning a 1 year old 30 day late will ding you a lot more than a 5 year old 60 day late. Just look at the credit profiles of MyFico members many have serious issues including bankruptcy, repos, tax leins and missed payments - THEN look at how quickly they recover and obtain new credit, lots of new credit, over a year or two.

 

Life isn't "fair", neither is credit reporting if you want to nitpik every factor, but give the over all picture of credit risk, FICO scoring is the standard bearer for good reason, a long long history and that has nothing to to with "lobbyists".   

 


I understand that Fico is a private enterprise, and not a banking or government entity. However, they operate within the parameters of the fcra. Its the provision of the fcra of a 7 year exclusionary period that is affected by "lobbyists."

 

Fico simply works within the parameters of the provisions of this act. The 7 year exclusion period is not proprietary information belonging to Fico. Fico does not have any algorithmic evidence in "choosing" 7 years as a measure of statistically predicting default rates. Seven years is a random number enacted into legislation, which was influenced by the banking industry, thus the "lobbyists" coming into play. 

 

If you read my original post, nowhere have I called into question the Fico scoring model.  Nowhere did I mention Fico at all. Im questioning the legislation within which Fico has developed its scoring model.

 

We live in the land of free enterprise. Fair Isaac saw a great enterprising opportunity and capitalized on it. Good food them! As an independent business owner, I wished I would have thought of it first! So understand that I'm NOT knocking Fico.

 

BTW, I'm not nitpicking, nor am I whining about "life not being fair." I'm quite content with my lot in life and by what I have been able to accomplish. I'm simply offering an alternative way of looking at a situation, that in my opinion is skewed in one direction.


Current Scores 3/2016 Equifax 676 Transunion 697 Experian 648 Goal Scores: 720's accross the board. Gardening Goal: 3/2017
Message 33 of 64
surferchris
Valued Contributor

Re: 7 years is Way too Da## Long!

You make some good observations and points...

Current Cards:
AmEx Hilton Honors Surpass//AmEx Platinum Card//Ann Taylor Rewards Mastercard//Capital One Platinum Card//Credit One AmEx//Credit One Platinum VISA//Fingerhut//Navy More Rewards AmEx//TruWest Platinum VISA//Aspire VISA//Costco Anywhere VISA//Lowes Advantage//Apple Card
Loans:
1 Mortgage/////Navy FCU Auto Loan (2020 Jaguar I-Pace)//Capital One Auto (2016 BMW i3)
Next Cards (4th QTR 2022):
Navy Flagship Rewards VISA//Chase Sapphire Preferred
Stats:
Scores: 700's // Inq's: 1 for mortgage // Util: 1% // AoOA: 21 yrs

Message 34 of 64
dman23
Frequent Contributor

Re: 7 years is Way too Da## Long!

A lot of ideas and hypotheticals so I'll keep my reply simple.

I agree 7 years is way too long for a late payment to remain on your report. 3 sounds reasonable and fair. I mean, geez, bankruptcy is 10 years. If you're already late on payments, or in collections, and it's a significant amount why not be a true deadbeat and file bankruptcy to eliminate the debts. What's another 3 years of negative reporting?

 

To be fair though, if a late payment comes off in 3 years then your positive closed tradelines should fall off after 3 years and not 10.

myFico Score Experian: Start (4/21/14) 626 Current (5/7/16) 841
myFico Score Equifax: Start (4/30/14) 694 Current (5/6/16) 838
myFico Score Transunion Start (5/01/2014) 727 Current (5/7/16) 842
Discover (4/24/14) 659 (5/5/16) 842
Message 35 of 64
iv
Valued Contributor

Re: 7 years is Way too Da## Long!


@dman23 wrote:

A lot of ideas and hypotheticals so I'll keep my reply simple.

I agree 7 years is way too long for a late payment to remain on your report. 3 sounds reasonable and fair. I mean, geez, bankruptcy is 10 years. If you're already late on payments, or in collections, and it's a significant amount why not be a true deadbeat and file bankruptcy to eliminate the debts. What's another 3 years of negative reporting?

 

To be fair though, if a late payment comes off in 3 years then your positive closed tradelines should fall off after 3 years and not 10.


But scoring models (and reporting retention) aren't designed with "fair" as a main criteria.

 

They are designed to be statistically predictive across lenders' customers bases.

 

Most of the "if I was building the model" posts I see seem to treat it like building an elementary-school grading rubric: do a/b/c to demonstrate mastery of x/y/z, and receive an "A".

 

But reporting/scoring isn't like that.  It's more: identify the slice of customers who will return $X profit at X% interest, the slice who will return $X profit at Y% interest, the slice who will return $X profit at Z% interest, and the slice to avoid.

 

The reporting/scoring doesn't care about you. Just about the statistical group you are in, and what terms to offer that group for best profit.

 

And if statistically, people with 3 clean years but historical delinquencies 4-7 years ago are as a group riskier than people with 7 clean years...

EQ8:850 TU8:850 EX8:850
EQ9:847 TU9:847 EX9:839
EQ5:797 TU4:807 EX2:813 - 2021-06-06
Message 36 of 64
pipeguy
Senior Contributor

Re: 7 years is Way too Da## Long!

grillandwinemaster... Due to forum rules governing "politics" even when the process adds to the discussion I can't/won't explain the legislative process to you as to how matters become law and who gets their "wants" included. It's not that sexy, but it's certainly not bought and paid for as a rule as has been suggested. Having been mod-slapped several times for providing correct and informational text in the past, I'm not going to cross that line.

 

If you'd like to discuss it off-forum by PM, I'm happy to share.  

Message 37 of 64
Thomas_Thumb
Senior Contributor

Re: 7 years is Way too Da## Long!

iv wrote:

 

But scoring models (and reporting retention) aren't designed with "fair" as a main criteria.

They are designed to be statistically predictive across lenders' customers bases.

 

Most of the "if I was building the model" posts I see seem to treat it like building an elementary-school grading rubric: do a/b/c to demonstrate mastery of x/y/z, and receive an "A". But reporting/scoring isn't like that.  It's more: identify the slice of customers who will return $X profit at X% interest, the slice who will return $X profit at Y% interest, the slice who will return $X profit at Z% interest, and the slice to avoid.

 

The reporting/scoring doesn't care about you. Just about the statistical group you are in, and what terms to offer that group for best profit.

 

And if statistically, people with 3 clean years but historical delinquencies 4-7 years ago are as a group riskier than people with 7 clean years...


 

Agree - It's all about the data and how well a particular model's scoring algorithm(s) correlates to real world results

 

If I were a lender I'd want a tool that minimizes MY risk-to-reward ratio. A secondary model deliverable would be one that provides an incentive for borrowers to pay their debts (a model that "overlooks" delinquent debts IF the debt is subsequently paid in full - eliminate scoring penalty when PIF). 

 

A credit scoring model must provide case study data with demonstrated results! If results aren't robust then the model lacks usefulness.

 

As one saying goes: In God we trust, all others bring data. Or put another way: Data talks and BS walks.

Fico 9: .......EQ 850 TU 850 EX 850
Fico 8: .......EQ 850 TU 850 EX 850
Fico 4 .....:. EQ 809 TU 823 EX 830 EX Fico 98: 842
Fico 8 BC:. EQ 892 TU 900 EX 900
Fico 8 AU:. EQ 887 TU 897 EX 899
Fico 4 BC:. EQ 826 TU 858, EX Fico 98 BC: 870
Fico 4 AU:. EQ 831 TU 872, EX Fico 98 AU: 861
VS 3.0:...... EQ 835 TU 835 EX 835
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950
Message 38 of 64
dman23
Frequent Contributor

Re: 7 years is Way too Da## Long!


@iv wrote:

@dman23 wrote:

A lot of ideas and hypotheticals so I'll keep my reply simple.

I agree 7 years is way too long for a late payment to remain on your report. 3 sounds reasonable and fair. I mean, geez, bankruptcy is 10 years. If you're already late on payments, or in collections, and it's a significant amount why not be a true deadbeat and file bankruptcy to eliminate the debts. What's another 3 years of negative reporting?

 

To be fair though, if a late payment comes off in 3 years then your positive closed tradelines should fall off after 3 years and not 10.


But scoring models (and reporting retention) aren't designed with "fair" as a main criteria.

 

They are designed to be statistically predictive across lenders' customers bases.

 

Most of the "if I was building the model" posts I see seem to treat it like building an elementary-school grading rubric: do a/b/c to demonstrate mastery of x/y/z, and receive an "A".

 

But reporting/scoring isn't like that.  It's more: identify the slice of customers who will return $X profit at X% interest, the slice who will return $X profit at Y% interest, the slice who will return $X profit at Z% interest, and the slice to avoid.

 

The reporting/scoring doesn't care about you. Just about the statistical group you are in, and what terms to offer that group for best profit.

 

And if statistically, people with 3 clean years but historical delinquencies 4-7 years ago are as a group riskier than people with 7 clean years...


Great points. Makes perfect sense.

myFico Score Experian: Start (4/21/14) 626 Current (5/7/16) 841
myFico Score Equifax: Start (4/30/14) 694 Current (5/6/16) 838
myFico Score Transunion Start (5/01/2014) 727 Current (5/7/16) 842
Discover (4/24/14) 659 (5/5/16) 842
Message 39 of 64
pipeguy
Senior Contributor

Re: 7 years is Way too Da## Long!

This is an interesting article which gives you a brief history of credit cards : http://www.encyclopedia.com/topic/Credit_cards.aspx

 

Considering the FCRA was passed in 1970, use that date to blend with the state of credit card issuence from the article. I also found some interesting data on what credit reporting was like prior to the FCRA (mainly used for the insurance industry) but some of the information is a bit disturbing so I'm not going to link to it. 

 

Section 605 of the FCRA states that adverse information is considered obsolete at 180 days plus 7 years, but it does not require CRA's to report data for any specific period (bankruptcy is reported longer). In other words, CRA's are allowed to report AA for 7.5 years, but are not required to by the FCRA (unless I missed something). 

 

Although CRA's are guided/governed by the FCRA (and subsequent additions), lenders need "scoring" such as that provided by FICO (defacto standard, but there are others) to properly "weight" raw data into risk factors. Considering that most car loans today are 5-6-7 years and mortgages are now 30 to 40 years (in 1970 the common mortgage was 20 years and a common auto loan was 36 months) - "up to 7.5 years" doesn't seem too long although 46 years ago it would seem to be IMO.

 

Edit - Add: This link is full of info from the Fed Reserve (a bit dry reading) - what is of interest is the state of the credit card industry in 1970 when the FCRA was passed compared to today - https://www.federalreserve.gov/pubs/bulletin/2000/0900lead.pdf

 

Message 40 of 64
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