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NY Times: FICO algorithm might change, but NOT SOON

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MattH
Senior Contributor

NY Times: FICO algorithm might change, but NOT SOON

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...In fact, Todd J. Zywicki, a law professor at George Mason University, predicted that FICO may have to adjust its credit scores to lessen the impact of a foreclosure or similar incident. “It just seems obvious that a foreclosure in 2008 or 2009 doesn’t have as much information value as a foreclosure five years ago,” he said. “To the extent that foreclosure doesn’t predict future behavior as much as it did in the past, you’d expect that the FICO algorithm would change to adjust for that.”


Craig Watts, a spokesman for FICO, said that was an interesting idea. “We try not to get involved too much in psychobabble around what is and isn’t predictive,” he said. “If the numbers show that foreclosure is less predictive, then we’ll take it into account in future redevelopments of the formula.” That would take a minimum of two to three years, though...

 

Don't hold your breath.  And if the economy continues to tank, foreclosures might even become more predictive as it becomes ever more important to have cash reserves.  Many people seem to confuse moral and credit judgements: a credit score is not an opinion about you as a person, it is a hard-nosed calculation about the financial risk of lending to you, nothing more and nothing less.  Formulas like the FICO algorithm are about data pure and simple.

 

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