Does anyone else feel shafted by FICO?

[Desert-Rat]

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@marty56 wrote:

Each night I hear the mournfull cry of my Visa and Sams card telling me to buy that big screen TV, more DVDs and computer games.

Each time we go to Walmart and Sams, I hear the TVs and DVDs calling me to be their daddy and when I'm online, I find my self at Amazon.com , just one click away from that 55 inch Samsung LED TV and 2 seconds away from death by DW.

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I'm sure glad I don't use sugar in my coffee!  Now, if you'll excuse me while I go clean my keyboard......... lmao! 

D-R

[BungalowMo]

This may not be popular opinion...but it's my opinion.  Not pointing a finger at any "one" particular person.

Actually, the economy wasn't good...it was ready to collapse.  Those who bought overly expensive vehicles, bought huge McMansions & maxed out their credit to purchase the furniture to fill it...they got what they asked for.  But then everything fell apart.  The ARM loans came due & people couldn't pay.  Now they all want a break...forgiveness.  Bull....

Years ago, I screwed up.  My credit suffered.  I fought my way back into the good graces of the lenders.  I paid 18.99% interest on a car, just to start a good credit history.  I took a crappy starter card to start up some cc history.

I didn't want to declare BK.  I paid off my debts and they are finally dropping off.  It's been a long 7+ year battle.

We ALL go by the same scoring system.  Good or bad.  FICO doesn't care how old you are, your gender, your race or how much money you make.  It is what it is...unbiased.

When people overextend themselves, they are setting themselves up for a fall.  No one NEEDS to live in a 5000 sq ft home.  If you do, then you best better be able to pay the piper, because honestly....I'm tired of bailing them out!

As far as cc closing...not had one close yet.  I had recently received an increase on the 3 I'd requested.

I don't have all the answers, but I know that this country sank because people got greedy... and that greed ended up taking nearly everyone down with them.

I blame the slimy LO who authorized these bad loans & the careless & blind buyers who couldn't wait to park theiroverpriced vehicles in their oversized garages to feed their oversized egos.

 

If we learn nothing else....LIVE WITHIN YOUR MEANS & PAY YOUR OWN WAY.

 

[Anonymous]

I don't necessarily have an issue with the algorithm; frankly, given the debt abyss, it could even be tighter. The problem, as I see it, with the FICO system is the mindset of lenders. Let's assume person A has a mid-700s score and grosses $50,000 per year, and person B has a mid-700s score and grosses $250,000 per year. Further, let's assume that, in general, persons A and B each carry 3 credit cards with aggregate limits of $30,000 and $60,000, respectively. Neither have any card maxed out. Now, let's talk about a car purchase.

Both are interested in, say, a Ford Expedition with a negotiated price of $42,500. While a car dealership (or financing company) asks for your annual income, and pulls a credit report, (here comes the rub), they rely solely on what? Your FICO score. So, in this situation, they make the loan to both person A and person B, right? (Disclosure: I know some of you will disagree, but I have clients who are finance managers at various car dealerships, and I've run this scenario by them, so I know this to be the case.)

OK now, so who is in danger of potentially running into a cash flow issue in the future and potentially defaulting? All things being equal, it is obviously person A. So, how can that be? Both had the exact same FICO score, so isn't the risk they present to the dealership exactly the same? The answer is a resounding NO. The problem with the manner in which FICO scores are used by lenders, insurance companies, and now many brokerage houses, is they use the lemming mentality, are lazy, and simply rely on "someone else" to handle the decision. They do not consider ability to pay based on one's income, period. Again, for those of you who will disagree, I have solid proof of this from three separate sources, all independent of one another.

So "myficomatt," my opinion is that you should blame Fair Isaac or their inimitable algorithm; rather, you should look your lenders in the eye and tell them to actually THINK about your ability to make a purchase on credit. I wish you luck with this as my (yes, cynical) experiences indicate most lenders are afraid of their shadow, so blindly following a system that protects them regardless their decision is much safer than actually thinking.

[BungalowMo]

RS49....I can agree with your findings except for one point...it is up to "borrower A" to be sure he's up to the challenge of paying back.

At some point, the borrower has to be responsible.  Just because I "can" get a $40k car loan doesn't mean that I necessarily can afford to pay it back.  

What works on paper doesn't necessarily work on payday.

[Anonymous]

Mo...no doubt that every borrower should **bleep** well look themselves in the mirror and take stock of their financial house. I am not blame-shifting here. I am simply pointing out that the lending community as a whole has a lemming mentality, and uses FICO scoring as the primary attribute in making a determination whether to extend or not extend credit.

Net, net, the lending game wholly FICO-based. When will our lenders actually go back to doing their jobs and THINKING??

[BungalowMo]

Oh, I totally agree.  The days of your banker actually "knowing" you are long gone.  Unfortunately, for decades, we have all been stripped down to a data sheet.

[Anonymous]

I agree with those who say the only way out is not to use credit.  Just like the computer in the movie "War Games", the only way to win the game is -- not to play.  HOWEVER, how do you deal with fact that your  credit scores are used these days 1) by your insurance company, to decide what rates to charge you, and 2) by employers, to decide if you're "worthy" of receiving an income from them?

       Ay, there's the rub.  I love Dave Ramsey, have followed his principles for years, before I even knew he was around.  Only use a card because it gives Rewards.  Pay it of EVERY month, so I'm called a "deadbeat" by the credit companies.  All of this has happened to our society in 1 or 2 generations, and it's not for the better.  They run our lives (if we let them).  As one band titled their album, "Rage against the machine".  But it may still try to drag you down.

[Math_Rocks]

RS49,

Welcome to the forums!

I have not been in the mortgage industry for a very long time (thank the Lord!) but it was just as I was getting out that lenders started using FICO scores, Beacon scores to be exact. After processing loans for six years, I knew a good package from a bad package. In fact, I had a very good reputation with several underwriters.

When the scores were introduced, it was astounding to me that we had to put the info into this little machine, out popped a score and who would take the package (if at all) depended on this three digit number. And we weren't even allowed to see how it was computed! (Honestly, I still remember thinking it was some kind of joke and, even once I accepted it, couldn't see the mortgage industry using it for very long - called that one wrong, unfortunately.)

In fact, I (partially) blame the use of FICO scores for underwriting becoming overly lax. Two of the most important numbers in a loan package are the ratios: total housing to gross income and total housing plus debt/loan payments to gross income. When I started, it was rare to get an underwriter to approve a loan with ratios higher than 28/33. Leaving, we regularly got packages through with 40/45. Keeping in touch with others still in the industry, up until two years ago, loans with ratios of 50 or 60% were going through. And that's based on gross income! Also, many NIV (no income verification) loans were approved based on credit alone. (Which goes to exactly what you were saying about vehicle loans.)

Anyway, FICO is an unbiased algorithm and shouldn't be blamed for what it is (and what it isn't). However, lenders across the playing field need to be held accountable for flagrant overuse and misuse of this singular piece of information.

[Anonymous]

Math_Rocks,

Thanks for the welcome.

I believe you and I are saying the exact same thing. Blindly following a system in an effort to relieve one's responsibility to assess a borrower's financial situation, ability to repay, and risk of default is egregious. Regardless, as I said to Mo, I hold borrowers primarily responsible for delving into their own financial health for a quick reality check. Beyond that, lenders MUST step up to the plate, and quit using FICO scoring as their safety net for every decision.

While re-regulation amongst your industry was necessary, and re-regulation of the commercial banking system is necessary, it's no different than going on a fad diet without changing one's mindset or eating habits. You'll lose the weight, but never permanently. Without change in the system associated with lending decisions, we continue to face systemic risk within the system, and credit decisions will continue to be made without TRUE consideration of one's ability to repay a loan.

RS

[TinaBina]

Yes I'm with you on that. I feel the same. Now the ones who slacked are being bailed out.