How does FICO plan to react to the widespread CLDs?

[Anonymous]

I think we all agree that the factors CCs are using to justify their CLDs are shaky at best... they seem to be targeting their best customers, more than their worst?? CLDs affect your FICO score because they drastically increase your apparent debt ratios, and clearly this is through no fault of the consumer. Can/will/should FICO make a short-term formula adjustment to account for all the people who are unfairly appearing "maxed-out?"

I mean, the banks are crying that credit is getting harder to get and they are tightening up their lending standards. The CCs are cutting limits, making once-well-qualified customers appear maxed-out, thus shrinking the pool of customers for new loans even more! Aren't they kinda shooting themselves in the foot?

I agree the answer is NOT to keep lending like it's 2004, but I also don't think cutting off their noses despite their face will help, either.

[MidnightVoice]

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@Anonymous wrote:

Can/will/should FICO make a short-term formula adjustment to account for all the people who are unfairly appearing "maxed-out?"

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No/no/no.

Any change takes months/years to produce as all the relevant stats have to be analyzed, and they do not yet exist.  Then the CRAs need to buy the scores, and FICO 08 shows that that is not easy.

Finally, anyone who is unfairly maxed out who cannot immediately pay off the amount to reduce util is probabaly STATISTICALLY a high risk

[Anonymous]

True true re being "statistically" a high risk.. but I seem to be reading lots about balance chasing... so even if you've got a $10K balance and pay it off in 2-3 months, they chase you down to the bottom & basically eliminate your credit line & their relationship with you entirely.

What's that all about?

[MidnightVoice]

Reducing their exposure to potentially risky customers

[laz98]

are they really risky, though, since they were able to pay down the balance pretty quickly?

[marty56]

While it may be unfair to do a CLD on someone who has a good payment history, it would be equally unfair to adjust the scoring algorithm when others manage to keep low util. 

[cobra19]

LOL.......you kidding, right? They can't even figger out how to score AU's.

[RobertEG]

I understand your view of impact.

Whatever the fairness or inequity of a CLD initiated by an OC on scoring, I dont see it as being addressed by FICO scoring anytime in the near future. 

I dont expect FairIsaac to do a "fairness" analysis,and then incorporate that as a statistically valid factor for any immediate modification of their scoring algorithm.

[MattH]

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@RobertEG wrote:

I understand your view of impact.

Whatever the fairness or inequity of a CLD initiated by an OC on scoring, I dont see it as being addressed by FICO scoring anytime in the near future. 

I dont expect FairIsaac to do a "fairness" analysis,and then incorporate that as a statistically valid factor for any immediate modification of their scoring algorithm.

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Agreed.  Even if they wanted to do so, it would take a long time for them to accumulate relevant statistics, and by the time they did the situation may well have changed again.  Just about the only point on which economists are in agreement at present is that we as a nation are in uncharted economic waters, and therefore nobody can predict what will happen to the country or to individuals.  Unfortunately, at times like these the single best predictor of how individuals will fare is probably gonna be whether during the boom years they left themselves some financial wiggle room.  By this I mean a lot more than just having an emergency fund, although having an emergency fund certainly is an important aspect of financial prudence.  Wiggle room can also be just about anything else that gives a household financial flexibility: how heavily leveraged are they, how many of their expenses cannot be changed on short notice, and so forth.  If anything, I expect having high debt ratios may be even more predictive of default in the near future than in the past.  The statistics FICO has now were accumulated during the biggest and longest sustained economic boom in recorded history, and I think the entire developed world is going through a generational change in its attitude towards credit whose consequences cannot be predicted.

[Anonymous]

On Matt's note of uncharted economic waters, how did people go about obtaining credit in the era of the Great Depression? There was no FICO score then. Friend & family references?? Or did people just not have access to credit at all? They did buy houses & even cars, so that can't be right...anyone know?