Understanding FICO® Scoring

[ceprn]

"If you get a new job that pays $10 million a year and pay off all your debts your credit score goes down"

That has not been true in my case.  When I had some open debt on my credit cards (30k out of 230k), my score was in the 710 range, when it dropped to 15k, my score went to the 720 area and when it dropped to 1k, I bounced to 792...

[Noah_Bodie]

ScottC wrote:
Why do you want a higher score? If you get a new job that pays $10 million a year and pay off all your debts your credit score goes down. Your ability to pay off debt is not a factor in your credit score. The truth is, a credit score is really an “I love debt score”. It tells the banks how profitable you have been to other lenders.

...

I’ll know that we are succeeding with money when my FICO credit score is zero

Wow! Talk about an off base non sequitur with little basis in reality.

Your FICO score has nothing to do with how profitable you are to banks. The people who are most profitable are those who are teetering on the edge of BK, or who really need to declare BK and any honest economist would tell that person they should.

Your FICO score is all about your ability to pay off debt. The lower your score, the more of a credit risk you are. One can argue over whether certain aspects of FICO scoring are truly indicative of risk, but risk is the name of the game. Fair Isaac has been so successful because lenders know it is generally a good indicator of risk. The CRAs and the banking industry has been searching for it's own algorithms, and some are using alternatives. But the lionshare use FICO.

Most credit freaks have figured out the merits of scoring low APR, high CL, no annual fee CCs--through FCUs and other lenders. There are a number of folks with several hundred thousand dollars in available CL, no annual fees, no balance, and high FICOs.

You appear to have little grasp on FICO scoring if you think you're ever going to get "back" to a FICO score of zero, because it doesn't exist. Those with thin files might have too little info in their file to generate a score, but once you have a score you're unlikely to ever get back to the point where you have no score.

Yeah, I suppose if you did hit the lottery or otherwise score $10 million dollars, you could PIF your mortgage, your car, and have zero debt. But you'd be a daft fool. Any economist with half a brain cell would tell you to refi your house and get a rate down in the low 5's then invest your money. Paying 5 some odd percent interest on your home, but getting 12-18 percent return in the stock market or mutal funds makes sense. PIF your home does not.

[ilovepizza]

You can also think of the FICO score is in a way sort of a certification as to how much "experience" you have at handling different types of debt. A person with no lates and lots of cash might have the ability to pay something back but has no proof of doing so with out showing history. Higher scores = less profitable. The highest scores many times result in 0% apr loans; my favorites. Imagine having a score so high no matter how many loans you take, or how much money you can borrow, your score still stays above 760. Imagine how much further your money can go with out paying higher interest especially on a lower income. People say well you have a 760 so a higher score won't matter. Well that is until you charge $1000 on a CC and your score drops 50 points. Where as an 810 would give a person more room to "use" the credit they worked for. Higher scores = more money in my pocket. To me scores = money.

[ilovepizza]

I like that. FICO score = experience or proof of payment ability. Not how well you can pay loans back or how much money you make.

[TheNewWorldMan]

I can see both sides. On the one hand, there are people who fall afoul of the FICO scoring system because their income took an unavoidable nosedive, or they had an expense bullet that they just couldn't dodge. Illnesses and concomitant medical bills are probably the best example.

On the other hand, there are people who simply cannot plan ahead and manage money. I've seen people making $150,000 a year--after tax!--who are one step ahead of the repo man. They just don't believe--or don't care--that expenses have a nasty tendency to rise with income unless you discipline yourself...

[ilovepizza]

I personally have seen a wealthy person with no credit, income $17,000 a month. His Lexus and Jeep SUV repo'd. Their house was $450,000. So the mortgage should not have been a sinking factor... He let the bills pile up on the kitchen table then stuffed them away in a drawer. Watched TV but never felt like being bothered to pay the bills. Lazy. The cars were repo'd because he missed 6-8 months of payments. He had the money, just didn't pay his bills and honestly did not care. He bough a new car. After 3 years of stuff like this, debt collectors finished him off financially.

I'm wondering if his wages were being garnished from past debt before this started? He whet from making $90k to over $200k and his life went down hill from there. But no one lived as well as he did for 2 of those years.

I also watched a friend do the same thing but on a lower scale. Got credit, blew it in just 1 month, had no way of paying it back. But what a great month it was. 7 years to pay for it.

I find this incredibly hard to believe how people can do this. If I didn't see it happen to so many people I might not have believed it. This is a common thing I have heard over the years. I'd ask "Hey, do you want me to get your mail on the way in? (reply)Na, just leave it, it's only bills." Personally I can't handle the stress of waiting for a bill in the mail. I need to pay it online. I even have a paper on the wall with due dates for everything. I am amazed how people just say they can't be bothered, it's just a late fee...

Message Edited by ilovepizza on 08-25-2007 05:09 PM

[kollok]

Well I am so happy that i got a chance to read this thread there was so many Question's in my head about scoring and and boosting my score after reading this a lot of things have made sense and i do understand what that other member is saying about more credit=more dept no credit= good shape that is so true but sorry to say that some lenders really don't think at all u give him ur APP he punches a few keys takes one look at ur report and boom IF U DON'T HAVE A hight score ur not the person he wants to deal with and that is that !! but let me tell u guys something ((if i may)) i am getting jells here all of u talking hight 700s here i am barley making 600 hhh now u know how i fell thanks to all...

[ilovepizza]

But income is a HUGE factor when applying for credit. It doesn't matter if the score factors in income because the lenders usually do on their side.

You score = experience. (FICO)
You income = credit lines. (Lenders)

Lenders use both Income and Score to determine credit. Try to apply with $0 income with an 820 FICO and watch how fast you get turned down. lol.

[ilovepizza]

---

ilovepizza wrote:
But income is a HUGE factor when applying for credit. It doesn't matter if the score factors in income because the lenders usually do on their side.

You score = experience. (FICO)
You income = credit lines. (Lenders)

Lenders use both Income and Score to determine credit. Try to apply with $0 income with an 820 FICO and watch how fast you get turned down. lol.

---

Just for those thinking about trying it. I will save you the inq on your CR. I applied a few times with $0 for income. All denied. I then had to GW a corrected income so I wouldn't get hit with a second inq.

[masdeocho]

I got approved for an AmEx Blue with $0 income (I refused to provide the actual amount).  I've been an AmEx customer for almost 20 years, so I guess that counted for something.