cancel
Showing results for 
Search instead for 
Did you mean: 

Percentage of accounts negative and FICO scoring?

tag
Anonymous
Not applicable

Percentage of accounts negative and FICO scoring?

Earlier this month I passed my 1 year anniversary from joining this forum.  I recall fairly early on I started a thread somewhat similar to the subject of this new thread.  At the time  when I joined the forum I had 22 late payments scattered across 4 different accounts on my credit reports, so based on how filthy my reports were I suppose it can be argued that my thread/post at the time was a bit biased.  Fast forward to today where I'm clean on 2 bureaus and have 2 remaining lates (on one account) on the final bureau, I find myself having not changed my opinion at all regarding what I said last year.

 

My argument in a nutshell is that percentage of negative accounts should be factored into FICO scoring.  Maybe they are to a very small degree, but not nearly to the degree that IMO they should be as a proper representation of future risk.  Let's take a look at 2 profiles here:

 

Joey and Frankie have identical profiles outside of the "payment history" slice of the FICO pie.  They have equal revolving utilization, open installment loan utilization, AAoA, AoOA, AoYA, inquiries, etc...

 

Joey has 7 accounts total on his credit report.  While this isn't considered very thick, it certainly gets him out of the "thin" file category. 

 

Frankie has 35 accounts total on his credit report.  Clearly, a thicker file here.

 

Joey and Frankie each have exactly 2 negative accounts.  Both negative accounts are of the same age and have the same severity (major) negative present on those accounts.

 

Based on my understanding of FICO scoring and how both Joey and Frankie would be in the same dirty bucket, I would imagine that their scores would be quite similar.  Since Frankie's file is thicker, one could anticipate that it would absorb a negative a little better than a thinner file.  With 2 major negatives though and all other things being equal, I wouldn't expect their scores to be much different to be honest.

 

So here's where I take issue with the scoring of Joey verses Frankie.  Joey has 2 negative accounts and 5 positive accounts; 29% of his accounts are negative.  Frankie has 2 equally negative accounts and 33 positive accounts; 6% of his accounts are negative.

 

If I'm doing a manual review of these 2 files, the fact that Frankie has proven his ability to meet the terms of his credit accounts 94% of the time tells me he's far less likely (smaller risk) to fall short again than Joey who has met the terms of his credit accounts 71% of the time.

 

I feel the percentages in the case of "payment history" should be considered.  If they are, I think they should be considered a bit more than is currently the case.  Percentages are considered in other areas of FICO scoring, such as when talking number of revolvers reporting balances, utilization percentages, etc.  I'd like to hear thoughts from the group on this.  

 

The bottom line is that scores are supposed to be representative of profile risk.  In this instance, I don't necessarily think that they would be when looking at the data. 

3 REPLIES 3
Anonymous
Not applicable

Re: Percentage of accounts negative and FICO scoring?

I forgot I started this thread a few weeks ago, as it died with no replies.  If anyone has a minute I'd really like to get some opinions on this subject!

Message 2 of 4
Revelate
Moderator Emeritus

Re: Percentage of accounts negative and FICO scoring?

It's not based on feelings, it's on data.

 

I haven't any idea what FICO determined from their datamining though it certainly appears at least with respect to PR's/collections and possibly lates, that the percentage isn't as big of a deal though they were babbling about patterns in their FICO 8 marketing literature so maybe it's a thing now.  Likely wasn't in the older models.

 

That said, having any negative buckets you, further similar negatives drops you down the scorecard and variation buckets you again even... I've always scored pretty well for how ugly my file was, but I had a fairly small absolute number of negatives even if they were varied (until recently where incidently some scores got whacked), but someone who had similar variation and a whole lot more in number, likely was scoring worse at least looking at anecdotal score reports here.

 

End of the day I'm not sure it matters much, what is on someone else's profile doesn't concern me at all, score higher, score lower, don't care, it's whatever a lender thinks of my individual file, FICO included, and that's all on me and nobody else.




        
Message 3 of 4
Anonymous
Not applicable

Re: Percentage of accounts negative and FICO scoring?

Right, and the data I gave in my original post would suggest upon manual review that one individual represents a fairly significant greater risk than the other, but all other things being equal outside of payment history these two individuals likely possess similar scores.  This is just one of those examples, IMO, where if a credit score is supposed to be a gauge of risk, it doesn't really make sense.  I get that no algorithm is ever going to be perfect and that just about every category can be argued in one way or another.  This category in particular just happens to stand out to me.

Message 4 of 4
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.