Income doesn't matter to FICO!

[Anonymous]

How come my original posts get so many responses? Am I that thought provoking?

[fused]

Maybe!

[Anonymous]

Ground attack jets draw fire.

[MidnightVoice]

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bobkelly wrote:

How come my original posts get so many responses? Am I that thought provoking?

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No, just very loud 

[haulingthescoreup]

hey, bobkelly, did you realize that you have hit the big time? If you go to myFICO.com (not the log-in page, but the main page), your string is the top-listed thought-provoking thread! 

[Anonymous]

Hehe! That's true. I just checked. "Income doesn't matter to FICO! Can anyone explain why one's income has no bearing on a FICO score?" LOL you made headlines! A link to your thread right on the home page. Middle right side.

[RobertEG]

Consider this reason why it is not beneficial for the  FICO and FAKO score generators don’t want to include income and net worth in their FICO scores.  Not including this as a factor works to the benefit of one of their largest customers….mortgage and installment lenders.  They have a product to sell, so gear their models to their most prolific buyers, which are not the consumers, but the credit grantors.  And why do creditors benefit from income NOT being included in FICO?  Of course, they take it into account when granting any loan or credit card, but then don’t take it into account when offering you an interest rate on their credit or loan.  Surprise, surprise!!!  ,They will use your "low" (they will argue) FICO as justification for a higher rate.  So a high income dude, who they know is a lower risk at the same or lower FICO score than another applicant, may be stomped with the lender's use of his FICO score as a reason for a higher interest rate.  FICO score modelers make more money by offering a tool that enables the lenders to use it to also make more money.  It is all about the profit that they both seek, and how to get it.  I am not foolish enough to believe that the credit score mathematicians are not influenced in their modeling decisions by the corporate need to offer a product that benefits their customers, who are not the consumers, but the lenders.  Oh, cynical me!!!

The alleged purpose of scoring is to speed the process of approving loans and credit.  On the surface, that makes perfect sense. Remember that ORIGINATING the loan is where the lender/broker makes money. They don't profit much after that - the secondary debt market buys the portfolios. 

Originating loans is a product/volume process driven to push as many loans through as possible given the number of people on hand and the hours available, so making the decision rapidly (as in underwriting) is crucial. Consumers are accustomed to the McDonalds/fast-food way of doing business; if you can't approve something NOW they'll look elsewhere (often at their peril).

Where it all breaks down though is the mythology of scoring representing someone's willingness and ability to pay. It fails to even consider assets or someone's income or net worth. A convenient tool and hammer for the lender to use to get a higher rate. It is also based on contaminated data, and they know it.  CRA report contamination is high, and never results in an advantage to the borrower.  So, another set of reasons, in addition to income data not being available to the CRAs, as to why they want to sell the idea that it is not important in a FICO score.  They will consider you high income when making a decision to grant, and then tell you that you are a higher risk due to your credit score.

It is their fall-back defense on setting interest rates and terms per the underwriter.

What it really is is a scheme not to get the lowest interest rate for the best scores, but to maximize the number of people in the pool who will pay the highest fees and interest rates for the allegedly "lower" scores.

The industry would have everyone believe that providing credit to as many people as possible knowing what the risk is from the score is good for everyone. Well, not really. If risk were really the issue, other factors would have to be considered.

It IS GOOD for ratchetting up interest rates, hence, the lenders BUY the PRODUCT (information) they need to justify their decisions on loan terms and interest rates. If CRA's and data brokers didn't contaminate their databases with junk and outright bogus submissions, there would have to be adjustments made to the scoring models to keep the risk-model vs. interest rate minions happy.

In other words, if some magic wand were to eliminate the 30-40% of bogus data and outright abuses in the system, scores would rocket upward and the lenders would have to either:

1 - Re-evaluate their FICO models to maintain the status quo - OR
2 - Lower interest rates to reflect their real risk in order to maintain or capture market share.

Care to make a wild guess which of those two things would happen?

While the convenience of a score has sped up the decision process, scoring itself has also provided a duplicitous tool to discriminate against and gouge the vast majority of people who don't have the knowledge, time, resources or experience to beat the system into submission by taking the time and effort, such as those of us who read this site, to understand the FICO game, and use it to their advantage.  Income DOES count, it is just advantageous from them to disingenuously say it doesn’t.  Its capitalism, my friends!

Message Edited by RobertEG on 10-14-2007 12:09 AM

[Anonymous]

You are EXACTLY right.  That's why all that, "the average FICO score is 670, 720, 950" is nonsense.  I would guess it's actually closer to sub-prime.  But the CRA can't come out and say that, or the whole pricing model (for mortgages, etc.) would shift.

I think FICO scores should be almost an "add-on" consideration, like employment history, years at residence,etc.  Especially when you're applying for large CL CCs.

Personally, if I'm going to lend you $100,000, I'm much more likely to do so to the gal who makes 120,000K a year, but has a thin credit file and two 60 day lates on her kmart card (FICO of maybe 540?) OVER the guy who has paid his 16 credit cards on time for 5 years (FICO of maybe 670-690)but makes 25,000K a year.

I don't think this is a crazy business model. 

Message Edited by ALEXREDD on 10-11-2007 12:55 PM

[Anonymous]

FICO was never intended to be the end-all and be-all of evaluating a client's worthiness to be loaned money. If some credit providers are basing their decision exclusively on FICO scores, that's on them.

[Anonymous]

I've been obssessed too but it is a harmless obsession so go for it!