FICO doesn't understand the credit card game

[Anonymous]

The OP has raised some interesting points to consider. I don't necessarily think that the FICO system is a perfect assessment of lending risk, but I'm not sure it's supposed to be. I agree with hauling's sentiments about giving up more of our personal finance information than we already do.


If FICO were to be a comprehensive picture of credit-worthiness, it might take into account other aspects of risk assessment such as income, time of employment, cash reserves, level of education, criminal history, and so on. How fine-grained do we want FICO to be, in balance with our privacy? FICO is only supposed to be one tool among many to determine credit worthiness. FICO's do include good payment history, but not to the level of specificity as the OP would like to see.

As others pointed out, the OP did not list his or her scores, but given the information provided I would guess that they are at least in the "good" range, say at least 720 but probably higher. Non-lenders who ransack our FICO scores (landlords, insurance companies, etc) should see the "good to excellent" score, note the excellent payment history, be happy with it, and move on.

The OP appears to be in a position to be able to rely on expansive cash reserves and a high income to make major purchases. I congratulate him or her on that. To be able to pay off a mortgage in cash is wonderful. The FICO scores may lose some of their measurement sensitivity towards the higher ends of the financial spectrum, but folks who have earned their way to that pinnacle also have less need of FICO's. Many statistical models lose their validity on the outliers. I sincerely congratulate the OP on reaching that stage of financial success.

Message Edited by taz on 11-23-2007 01:17 PM

Message Edited by taz on 11-23-2007 01:19 PM

[Anonymous]

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@marty56 wrote:

Would you really trust the government to manage our credit?

You got that right, brother.

Message Edited by taz on 11-23-2007 01:31 PM

[JuliaTN]

"Can't wait to see your results-"

Up 38 points in 2 weeks so far...

[Anonymous]

Ok, time to jump in & put my 2 cents worth in.

The very nature of the FICO scores are merely a risk assessment model, for the benefit of potential lenders in their decisions to grant/deny credit.

Income cannot be factored into the equation, because of the skewing that would occur.

For example: Take 2 people, one with a very high income of say, $100,000+ per year. And another person making say $25,000 per year.

Also consider that the person with the high income level is a dead beat, who is continuously late in their payments, with collections, bankruptcy, perhaps tax liens. And the person with low income has very clean credit report, who pays on time, maybe a rare 30 day late.

One cannot suggest that the 2 people be scored together, with income as a component of the scoring model.

The scoring models MUST judge the potential credit worthiness, and the PROBABILITY that the debts will be repaid, without considering income, and give that assessment to a potential lender.

[Anonymous]

The FICO score measures the PROBABILITY of paying back debt, not the ABILITY.

[just_curious]

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masdeocho wrote:

The FICO score measures the PROBABILITY of paying back debt, not the ABILITY.

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No - actually, it does not.

Think about what has been said on this thread - by myself and others who use CCs to their full advantage, including rewards programs.  I have never missed making any payment on time, and in full, in decades of using a wide range of credit instruments.  Yet FICO is so hung up on the % of my credit limit that is outstanding at the moment the monthly statement issues that it cannot possibly properly judge my "probability of paying back debt".  To do that Fair Issac needs to modify their algorithms to reflect the PIF behavior of many CC holders, which would only require a very minor adjustment in the data they consider.

This has been my point since my original posting - that a relatively minor improvement to the analysis would make a measurable improvement in the FICO scoring system, and I haven't seen anyone rebut this.  The comments that "it is what it is" and "just play the game" and so forth aren't really responsive.  I know how to "play the game" but the real question is...........

WHY SHOULDN'T FICO IMPROVE ITS SCORING SYSTEM ??

[MidnightVoice]

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just_curious wrote:

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masdeocho wrote:

The FICO score measures the PROBABILITY of paying back debt, not the ABILITY.

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No - actually, it does not.

Think about what has been said on this thread - by myself and others who use CCs to their full advantage, including rewards programs.  I have never missed making any payment on time, and in full, in decades of using a wide range of credit instruments.  Yet FICO is so hung up on the % of my credit limit that is outstanding at the moment the monthly statement issues that it cannot possibly properly judge my "probability of paying back debt".  To do that Fair Issac needs to modify their algorithms to reflect the PIF behavior of many CC holders, which would only require a very minor adjustment in the data they consider.

This has been my point since my original posting - that a relatively minor improvement to the analysis would make a measurable improvement in the FICO scoring system, and I haven't seen anyone rebut this.  The comments that "it is what it is" and "just play the game" and so forth aren't really responsive.  I know how to "play the game" but the real question is...........

WHY SHOULDN'T FICO IMPROVE ITS SCORING SYSTEM ??

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I am not a FICO/FI employee, but.....

First - FICO deals in statistical probabilty, not individual cases.  If you want individual situations to be considered, manual review is the answer.

Second - improvements.  From a business perspective, FI does what any business should do in a Capitalist society - it seeks to make profit whilst satisfying its customers.  We are not its customers, it has no need to satisfy us.  If its customers demand improvements, then it should be working on them.  If we demand improvements, we don't count until we get the legislature behind us.

[marty56]

Why is someone in the position to pay off their mortgage in cash and always PIF each month.  Interested in their FICO score?  Interest rates on cards would be irrelevant and if you can pay all the charges off each month, why not just write a check or use a debit card?

I understand most credit card companies report on the statement date so you would have to PIF by the statment date so you would still be playing the FICO game.

[Anonymous]

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just_curious wrote:

according to FICO, I charge too much compared to my credit limits

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Why no mortgage?  I paid it off in cash with the proceeds of one of the companies I sold a few years ago.

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And, of course, the idea I use too much of my credit limits is sort of funny when two of my AMEX cards have no limits at all.

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I saw in the mentioned thread the idea that income and wealth don't matter but only the willingness to actually make payments in full and on time.  Well, I have for over three decades, yet I rank in the middle of the US population?  It's nuts.

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I think it's you, just_curious, who truly doesn't understand the CC game.

The rules of the game, which are set by the OCs, is bring in the most subprimes. Lenders have tried, and some use, internal scoring systems they've developed. AMEX comes to mind. The CRAs are trying to developing scoring models for lenders to use, and the rules remain the same. Who brings in the most subprimes. More subprimes equals more profits for OCs.

If your FICOs are 720 or better, don't sweat it. You aren't going to gain anything if you somehow landed a score of 850 when you apply for loans.

No installment debt? Heck. That means you aren't helping lenders out. What's the matter with you? Got no heart? Don't cha know Citibank and others are looking to hire new top talent, after the previous top talent lost 'em so much money.

FICO is answerable to it's customers--lenders. They screamed about the AU issue, and FICO responded like it knows it better. By complying.

Finally, where exactly do you see FICO chastising you for charging too much? Don't matter if you charge to the limit of $1,000 or a $100,000 each month and then PIF. You still PIF. Whether you leave a balance of $20 or $2,000 on the CCs, it's still 2% util.

[RobertEG]

FICO scores are not always higher is better.  Ponder this....

Put yourself in the shoes of the credit card company, who is afterall both the customer and ultimate evaluator of what a FICO score means to them in their credit lending decisions.

Every credit card agreement has a provision that if you have any report of a late payment, with them or anyone else, they can immediately  invalidate any prior rate with you, and jack their new rate to the limit of their discretion.  

So they look at dude 1 with a 730-740 score.  He shows an occasional late payment every year or so, but never goes 60+ days over, thus justifying his good credit rating.  A little shaky, but overall of little statistical risk to go into any serious default, and thus risk.  Dude 1 is credit card revenue heaven.

They also see dude 2 who has a score of 780+, who got that great score by having absolutely NO late payments on his credit report.  Is dude 2 more desirable?  Hmmm...

Would you, as a lendor, see dude 1 or dude 2 as a better source of potential revenue versus risk? 

You grant dude 1 a low regular introductory rate, maybe a CCL increase, or low balance transfer  rate,, whatever he is seeking.  Dude 1 struts and puffs, and feels like he is now gold, and jumps at it!  Yet probability shows that dude 1 will most likely screw up and make a single late payment somewhere in his credit universe within the next year or so, giving you, the creditor,  the ability to wipe out his current low rates, and now soak him with any rate of your choosing.  CC rates are exempt from usury laws. You know that dude 1 is not aware that even a late payment on a competitors card gives you the contract right to up his rate on your card.  Mr. Lendor loves you, dude 1!  And  Mr. Lendor, also knows that there is low probability, from his credit history, that dude 1 will thereafter let payments go beyond that one single digression. Dude 1 learns his lesson, but one 30-day late too late.  So you have a reliable customer that you now have sucked into the web of your default rate.

You then look at dude 2, the 780+  FICO score  dude.  Little probability that he will fall into your rate hike gambit, for his score shows that he doesn’t miss any payments.

As George Thorogood would wail….who do  you love?