FICO doesn't understand the credit card game

[just_curious]

Howdy - I am new to the boards, so forgive what may have been discussed previously.  I have seen the multi-page thread "FICO doesn't care about income", but it only touches on the subject.  I think Fair Issac's system has not kept up on what's real in the credit card world to a significant degree.

Background - I have a good score with all three credit bureaus, but only at around the 60% of the population level.  Here's why - according to FICO, I charge too much compared to my credit limits, have too many cards with balances (I carry about 7 cards), and (here's where it gets really silly) - I don't have a mortgage or other installment debt. 

Ok - let's look at why...  I accumulate huge numbers of airline and hotel points, and I get a healthy % of purchases back in cash rebates.  Why no mortgage?  I paid it off in cash with the proceeds of one of the companies I sold a few years ago.

Oh - one other point - my record for some 30+ years as a credit card customer is not one late payment.  That's right - not one.

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.  Remember, I charge everything because I benefit from doing so - those who pay cash or by check or debit card are basically subsidizing my rewards programs.

I recognize that my charges are very high by most standards, but then so is the income that supports them.  There is no logic here - I charge a lot, can afford to pay, do pay ON TIME, and yet FICO can't seem to understand the credit card game, so they downgrade my rating.

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.

[Anonymous]

You have some valid points but also some inconsistent ones as well-

No mention of $'s here and that is fine- BUT
your 2 "NO LIMIT" Amex cards are not calculated into you Utilization of cards- and if you happen to be to be pulling reports for that one CRA that has the old FICO formula then it uses the "High LiMIT"

Congrats on you perfect payment history-

My APR on my Mortgage is about 6% - are you telling everyone in this forum that 1. You do not have investments that have a higher return than 6% to take advantage of? and 2. Are in such a high income bracket that you can not take advantage of the interest deduction?

Welcome to MyFico - you are right in the fact that it is a game, fortunately we have a good chunk of the rule book here and invite you to spend a little time reading to find out the real reasons FICO is not properly depicting your credit "RISK"

Message Edited by Timothy on 11-12-2007 05:24 PM

[Anonymous]

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Timothy wrote:
My APR on my Mortgage is about 6% - are you telling everyone in this forum that 1. You do not have investments that have a higher return than 6% to take advantage of? and 2. Are in such a high income bracket that you can not take advantage of the interest deduction?

Message Edited by Timothy on 11-12-2007 05:24 PM

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Excellent points.

The rich get richer if they know what games to play.

[smallfry]

My opinion only but you'd have to be crazy to carry a mortgage if you could afford to pay it off in cash especially if that amount of cash did not markedly reduce your liquid assets. A home is not an investment and the psychic income derived from not having a mortgage far outweighs any tax benefits you might gain by carrying a mortgage. FICO is not the be all and end all.

[just_curious]

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Timothy wrote:
You have some valid points but also some inconsistent ones as well-

No mention of $'s here and that is fine- BUT
your 2 "NO LIMIT" Amex cards are not calculated into you Utilization of cards- and if you happen to be to be pulling reports for that one CRA that has the old FICO formula then it uses the "High LiMIT"

Congrats on you perfect payment history-

My APR on my Mortgage is about 6% - are you telling everyone in this forum that 1. You do not have investments that have a higher return than 6% to take advantage of? and 2. Are in such a high income bracket that you can not take advantage of the interest deduction?

Welcome to MyFico - you are right in the fact that it is a game, fortunately we have a good chunk of the rule book here and invite you to spend a little time reading to find out the real reasons FICO is not properly depicting your credit "RISK"

Message Edited by Timothy on 11-12-2007 05:24 PM

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Thanks for your welcome !!

I really do think Fair Issac needs to revamp its analytics a bit.  Let me respond to a couple of your points to show what I mean....

I prefer not to provide specific $ numbers, but suffice it to say that my income and net worth are more than sufficient to assure that I can meet any possible credit card utilization.  To clarify, I pay my cards in full every month.  I am using credit to get benefits, not to finance a life style.  I have a perfect credit record and will continue to do so, but FICO can't seem to understand this form of credit card use, so it ranks me lower than seems logical with a perfect track record and my resources.  That's my issue.

I am not sure what is "inconsistent" about my points - could you clarify?

As to your two mortgage questions - #1 - of course I have higher return investments (including non-public investments).  I also have lower ones (money market accounts, and, unfortunately some stock market mistakes - oh well....).  Paying off the mortgage was a minor use of funds, and it fit into the overall portfolio reasonably well.  Smallfry has a valid point as well.  #2 - I am telling you that.  Deduction phase-out is a back door increase in tax rates that I have lived with for years.

Thanks for the idea to read more in the forum; I plan to of course.  I do sort of understand how to "game the FICO system" reasonably well, just pay down cards before the billing cycle dates since mid-month data is not reported and so forth.  The real issue is why the standard analytics cannot reflect the facts of my payment history without that game playing.

So, a simple question - shouldn't years of payments in full every month trump the "concern" about my card usage that suppresses the score?  In other words, isn't FICO wrong?

[MidnightVoice]

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just_curious wrote:

So, a simple question - shouldn't years of payments in full every month trump the "concern" about my card usage that suppresses the score?  In other words, isn't FICO wrong?

No.  No. 

Basically, FICO is a statistical analysis, and does not (and cannot) treat individuals as individuals.  30 plus years of perfect payments is only 7 years - only the last 7 years are counted in the score.  35% of the FICO score is utilization of of available credit.  Income is NOT a factor - FICO does not know your income.

So statistically, someone with your pattern over the last 7 years produces the score you have.

If you have a need to increase your scores, then paying balances before they are due might well do it.  It would be an interesting experiment anyway 

[haulingthescoreup]

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@just_curious wrote:
I prefer not to provide specific $ numbers, but suffice it to say that my income and net worth are more than sufficient to assure that I can meet any possible credit card utilization. To clarify, I pay my cards in full every month. I am using credit to get benefits, not to finance a life style. I have a perfect credit record and will continue to do so, but FICO can't seem to understand this form of credit card use, so it ranks me lower than seems logical with a perfect track record and my resources. That's my issue.

So, a simple question - shouldn't years of payments in full every month trump the "concern" about my card usage that suppresses the score? In other words, isn't FICO wrong?

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Edit:

Whoops, just saw where you said that you are aware of what I posted below. But when you say that FICO is somehow flawed for not knowing what your balance is at other times, how would you suggest that it get this data? It's silly to criticize a scoring methodology for failing to consider information to which it has no access.

Anyway, original post:

What's happening with your scoring is that you don't understand or haven't thought through the way that your payment patterns are reported.

You are PIF'ing (paying in full), which is great. But your credit reports, and therefore your FICO scores, don't know it. Why? Because you're paying at the wrong time in your payment cycle --AFTER your balance is reported to the credit reports. All that anyone can tell from reading 6 months' worth of your credit reports is that with all your great, high limit cards, you seem to be carrying a hell of a balance. So they will see one month, 90% utilization, then 88%, then 97%, and so forth. They can't tell that you've paid them down and charged them up again. You look like someone who's maxed out, eating Kraft macaroni and cheese, and selling plasma to pay your bills.

If you want your potential creditors to know that you are a great credit risk, PIF your cards about 4-5 days BEFORE they report to the credit bureaus. (It's pretty easy to find out the date for each one.) Let 2 or 3 --fewer than half-- report at any given time. After 31 days of this, where every card now shows that you are only using $19.37 on a $30K card, your scores will blow the roof off.

There's nothing dumb about FICO scoring. You just have to give it the proper data to work with.

Message Edited by haulingthescoreup on 11-13-2007 09:42 AM

[Dawn]

haulingthescoreup wrote:

There's nothing dumb about FICO scoring. You just have to give it the proper data to work with.

LOL! ... Are you SURE about that?    I guess if I don't read any of the "reason" responses we get on MyFico reports ...  I might could go there. 

I do see your point about the method to the madness ...

[just_curious]

haulingthescoreup wrote:

There's nothing dumb about FICO scoring. You just have to give it the proper data to work with.

What I see is a need to become expert at gaming the system - which shouldn't be necessary.  Look, the cards are PIF every month - FICO should be able to distinguish between carried over balances and cards which are PIF since those data are easily available (for example, I never have paid any interest on any card, ever).  If I use a high % of the CL and pay it off every month for years, it is really just a sign that CCCs don't have the ability to give high enough credit limits without me providing tax returns and other information I choose not to give them.  That's one reason I carry the unlimited cards as well.

So, I think a metric which says high usage of limits, without considering other facts (the use of rewards cards, always PIF, etc...) is missing a level of sophistication that is odd, since it shouldn't be that hard to understand what is going on here....

And, remember, in the face of that, I am apparently being penalized as well for not having a mortgage or other installment debt....

[MidnightVoice]

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just_curious wrote:

What I see is a need to become expert at gaming the system -

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It is a game, as I have said for ages, and if one wants or needs a high score, one needs to play it.  Life is not fair! 

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just_curious wrote:

  Look, the cards are PIF every month - FICO should be able to distinguish between carried over balances and cards which are PIF since those data are easily available (for example, I never have paid any interest on any card, ever). 

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That information is not reported, hence not avaiulable at all, so FICO can't use it.

My score languished in the mid 600s for years because I didn't know how the game was played.  So I learned, and I play the game, and now I have what I want.  A high score means I have available to me the CCs and the mortgage rates that I want.  OK, so I have to play the game to get it - but again, that is life.