Simply Fed Up with Fico/Credit Scoring in General

[Familywantsahouse]

I have to agree with a lot of what has been said. Especially in relation to the paid/unpaid collection thing, and my secondary "beef" is that a charged off credit card can still be factored into your "utilization"

Ridiculous.

The nature of "utilization" is that it's available to be UTILIZED? no? The fact that the card gets charged off should be enough of a credit HIT without continuing to factor into utilization for SEVEN years.

I completely agree given the nature of this recession, they are going to HAVE to do something for people who are being PUNISHED for losing jobs through no fault of their own. People who had their "6 month emergency fund" and had NO idea they could be laid off for a year OR MORE, and then come back into the job market for HALF of what they were making before. Or people who did EVERYTHING right in their life and find themselves 100,000 upside down in a house and NEEDING to relocate.

I get the "play by their rules or pay cash" idea, but that's just not realistic and it should be MORE transparent. Medical collections epsecially NEED to be treated differently. We hand out free medical care to low income people ALL DAY LONG, but someone in the middle class cannot afford to pay an entire month's salary for one ER visit and they are ruined for 7 years? Insane.

[drkaje]

On utilization, my guess is it reflects the percentage of total credit used.

[Anonymous]

There are so many great points here and I can agree with a lot of the things that have been said in this post. I agree there has to be a system but our system penalizes average Americans who have setbacks and upsets and failures. Our system does not allow for ANY common sense to be used. It prevents people from getting a second chance, even if they deserve one.

We do not EDUCATE our children or the population in general on the appropriate use of credit (and all the BS rules that are necessary to establish and build good credit, i.e. keep a credit card and wiggle around with finding the sweet spot - anywhere between 1 and 9%, that's ridiculous) but rely on it for EVERYTHING, not just buying a home, car, getting credit cards - GOOD PEOPLE are not offered jobs because of their credit score which was probably decent before they lost their job.

The fact is OUR NATION is in debt and our financial crisis is bigger than the average Joe. We replicate our leaders unfortunately and have gotten ourselves caught in a trap. It's unfortunate but there are always people/institutions that are going to capitalize on misfortune.

[FrugalRican]

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@Anonymous wrote:

 Our system does not allow for ANY common sense to be used. It prevents people from getting a second chance, even if they deserve one.

We do not EDUCATE our children or the population in general on the appropriate use of credit (

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I have to say, it's a great post, but I have to disagree with two points.

#1: The system doesn't prevent people from getting a second chance. These forums and the Rebuilding forum are great proof of that. Plenty of our posters are proof positive that the system allows for flexibility of improvement given some time and due dilligence. How many success stories have we read about going from BK's to mid-700's? How many success stories have we seen of people who lost their jobs, their houses, and years later are back in good standing? That's a few of many examples of how people have had second and even third chances.

#2: If we do not educate our children about credit, is that on us as a general population, moreso than on the system that is in place?

[Anonymous]

I wrote this really awesome response and it disappeared. SIGH!!!!! As it is, I must go write case notes.

Something that's I'd like to say though really quick: the average American isn't on these boards, they are busting their rears at jobs where getting online is not possible. The average American doesn't have the capacity to put into motion the things that the followers on this site do to get their second chance. I truly think if you're on here, if you're at the post office mailing things, if you stay on hold for 16 minutes, talk for 59 minutes only to be told you have the wrong deparment, if you have the memory to retain what a CRA, CC, CCC, CA, FCRA, OC, etc. stands for, you've exceeded average. I think we are outliers. Just my opinion.

BTW, I do want to say I find your blog and your posts delightful and your assistance has been very, very appreciated!

[chrissykat]

I'd just like to say that I think the system needs revamping as well and part of that comes with loan officers putting forth effort to actually do their jobs.  I have a perfect repayment history but I discovered a collection on my report when I tried to refinance my car in January.  The collection is completely invalid - I've sent letters to CR, the original creditor, and the collection agency; I have no idea when it will be taken off my report.  It's from 2009, just being reported in 2012 and most of all, the information is completely wrong.  I was still denied for an auto loan refinance despite having a 7% utilization, 6 year perfect repayment history, and only three inquiries.  If loan officers actually got off their tails and put forth effort into looking at the entire report rather than just the score, then that would help ease the dependency of just a score. Because it's just that. Just a score. 

[ztnjpv]

I agree with the spirit of the OP...but I disagree with some details.

Firstly, the scoring formula is secret because it's the intellectual property of Fair Issac. They own it. FICO is a business and they have something that forms the core of their business and livelihood. I can respect that. They can't be forced to give it away. 

That being said, I agree with the OP that the very purpose and aim of the FICO Score is not very well served by the formula as it is. It truly does leave a lot to be desired. FICO Scoring is a blunt instrument that fails to provide precision in the predictive accuracy of delinquency on an individual level. The formula cannot distinguish between the true differences of various people with roughly the same score. The composition can vary widely. And more importantly, depending on the details of the report, it cannot demonstrate why a certain "Person A" with a score of 678 is a lower or equally low risk as a certain "Person B" with a 757. WHY is Person A's score 678? It matters. 

Basically, the FICO is treated by lenders as a bullseye for a missile that hits within a few inches or feet from miles away BUT, in reality, it really only manages to hit within a half mile or so or a city block at best in far too many cases. And that's just not good enough. Lots of innocent casualties. 

[drkaje]

The system would revamp itself if we depended less on credit.

[Mikeguy11]

I have to disagree.

The OP's first point is contradicted within their first point.

"1. The consumer does not know how this score is computed."

"pay your bills on time, avoid collections, and run zero balances on most of your CC's and a less than 9% total on one"

The point comes down to a complaint about not knowing how scoring works, then goes on to explain exactly how to have a high score. Sense - this makes none.

Secondly, the front page of this site explains exactly what contributes to FICO scoring: 35% payment history, 30% amounts owed, 15% length of credit history, 10% new credit, 10% types of credit used. That the mathematical formula (which is a trade secret and the entire business model for Fair Isaac Corporation) isn't handed to you is irrelevant. This is a private business providing a private service to those wishing to lend credit to various persons. You have no intrinsic right to the trade secrets of Fair Isaac Corporation any more than you have the right to Coca Cola's recipe beyond the list of ingredients.

The second point is also just flat wrong. A perfect history is not required at all. I saw a guy on the auto loans forums with a mid-400s credit score who had an auto loan from Honda Finance at about 4%. People with low to mid 600s (i.e. not perfect, not even close) credit scores get credit all the time. The lender simply prices the product based on the risk. Those who shop around a bit and make smart decisions about who they'll accept credit from can get very good rates with an average or below average credit score. In the case of the OP's wife, Honda has no idea whether the collection is illegitimate. What they know is they've got someone trying to lease a vehicle who's got a reported collection and a reported 30 day late. Credit is NOT a right. Honda is under no obligation to give someone a lease, regardless of their credit history and regardless of whether or not particular baddies are accurate. Honda's obligation is to make money for its shareholders. If it believes that a given transaction with a given individual will lose money for the company, they have an obligation to deny that transaction.

The third point is at least slightly less incorrect in that a lot of people within the system use credit scoring to get more money. Specifically, car dealers will tack on extra interest to financing they broker in order to make more money. However, it's your responsibility as an adult to educate yourself as a consumer and get yourself a good deal. If you pay $50 for a G.I. Joe toy one store and then see it for $30 at another, nobody stole from you. You, as an adult, made the decision that the toy was worth $50 and agreed to the transaction. The store where you bought it is under no obligation to sell it to you for $30 simply because it's possible for them to afford to do so. Similarly, the Ford dealership is under no obligation to get you a loan for 3% simply because it's possible for them to find one for you at that rate. If they offer you 5% and you accept, no wrong has happened. Be an adult and accept responsibility. If you know 5% is high based on the research you've done (being an informed consumer is your responsibility) then either negotiate down to a rate that you find acceptable or walk away. No one is forcing you to take credit under any given terms. No one forced the OP's wife to accept the (apparently too high) lease rate Honda offered. The OP believed the rate to be unacceptable and declined Honda's offer. That's kinda the whole idea of commerce.

What it comes down to is a few simple principles:

1. You have all the information necessary to educate yourself about credit/scoring and to be an informed buyer (library Internet costs nothing)
2. No one but you has a responsibility to educate you so that you can make informed buying decisions
3. Your credit score is NOT a judgement of you as a person nor does it say whether you'll pay up; it is merely a measure of the likelihood that you will keep to the letter of the terms if credit is extended to you
4. Credit is NOT a right; it is a privilege extended to those with the desire to purchase something by those with the means to do so. The primary purpose for creditors lending to debtors is for the creditor to make money. As such, they must price in risk so as to cover the losses from people who don't pay/declare bankruptcy/etc.

[drkaje]

Fist-bump @ Mikeguy11!