topic Re: FICO doesn't understand the credit card game in Understanding FICO® Scoring

FICO doesn't understand the credit card game

just_curious — Tue, 13 Nov 2007 00:18:51 GMT

Howdy - I am new to the boards, so forgive what may have been discussed previously. I have seen the multi-page thread "FICO doesn't care about income", but it only touches on the subject. I think Fair Issac's system has not kept up on what's real in the credit card world to a significant degree.

Background - I have a good score with all three credit bureaus, but only at around the 60% of the population level. Here's why - according to FICO, I charge too much compared to my credit limits, have too many cards with balances (I carry about 7 cards), and (here's where it gets really silly) - I don't have a mortgage or other installment debt.

Ok - let's look at why... I accumulate huge numbers of airline and hotel points, and I get a healthy % of purchases back in cash rebates. Why no mortgage? I paid it off in cash with the proceeds of one of the companies I sold a few years ago.

Oh - one other point - my record for some 30+ years as a credit card customer is not one late payment. That's right - not one.

And, of course, the idea I use too much of my credit limits is sort of funny when two of my AMEX cards have no limits at all. Remember, I charge everything because I benefit from doing so - those who pay cash or by check or debit card are basically subsidizing my rewards programs.

I recognize that my charges are very high by most standards, but then so is the income that supports them. There is no logic here - I charge a lot, can afford to pay, do pay ON TIME, and yet FICO can't seem to understand the credit card game, so they downgrade my rating.

I saw in the mentioned thread the idea that income and wealth don't matter but only the willingness to actually make payments in full and on time. Well, I have for over three decades, yet I rank in the middle of the US population? It's nuts.

Re: FICO doesn't understand the credit card game

Anonymous — Tue, 13 Nov 2007 01:24:43 GMT

You have some valid points but also some inconsistent ones as well-

No mention of $'s here and that is fine- BUT
your 2 "NO LIMIT" Amex cards are not calculated into you Utilization of cards- and if you happen to be to be pulling reports for that one CRA that has the old FICO formula then it uses the "High LiMIT"

Congrats on you perfect payment history-

My APR on my Mortgage is about 6% - are you telling everyone in this forum that 1. You do not have investments that have a higher return than 6% to take advantage of? and 2. Are in such a high income bracket that you can not take advantage of the interest deduction?

Welcome to MyFico - you are right in the fact that it is a game, fortunately we have a good chunk of the rule book here and invite you to spend a little time reading to find out the real reasons FICO is not properly depicting your credit "RISK"

Message Edited by Timothy on 11-12-2007 05:24 PM

Re: FICO doesn't understand the credit card game

Anonymous — Tue, 13 Nov 2007 02:18:07 GMT

Timothy wrote:
My APR on my Mortgage is about 6% - are you telling everyone in this forum that 1. You do not have investments that have a higher return than 6% to take advantage of? and 2. Are in such a high income bracket that you can not take advantage of the interest deduction?

Message Edited by Timothy on 11-12-2007 05:24 PM

Excellent points.

The rich get richer if they know what games to play.

Re: FICO doesn't understand the credit card game

smallfry — Tue, 13 Nov 2007 03:31:43 GMT

My opinion only but you'd have to be crazy to carry a mortgage if you could afford to pay it off in cash especially if that amount of cash did not markedly reduce your liquid assets. A home is not an investment and the psychic income derived from not having a mortgage far outweighs any tax benefits you might gain by carrying a mortgage. FICO is not the be all and end all.

Re: FICO doesn't understand the credit card game

just_curious — Tue, 13 Nov 2007 15:27:12 GMT

Timothy wrote:
You have some valid points but also some inconsistent ones as well-

No mention of $'s here and that is fine- BUT
your 2 "NO LIMIT" Amex cards are not calculated into you Utilization of cards- and if you happen to be to be pulling reports for that one CRA that has the old FICO formula then it uses the "High LiMIT"

Congrats on you perfect payment history-

My APR on my Mortgage is about 6% - are you telling everyone in this forum that 1. You do not have investments that have a higher return than 6% to take advantage of? and 2. Are in such a high income bracket that you can not take advantage of the interest deduction?

Welcome to MyFico - you are right in the fact that it is a game, fortunately we have a good chunk of the rule book here and invite you to spend a little time reading to find out the real reasons FICO is not properly depicting your credit "RISK"

Message Edited by Timothy on 11-12-2007 05:24 PM

Thanks for your welcome !!

I really do think Fair Issac needs to revamp its analytics a bit. Let me respond to a couple of your points to show what I mean....

I prefer not to provide specific $ numbers, but suffice it to say that my income and net worth are more than sufficient to assure that I can meet any possible credit card utilization. To clarify, I pay my cards in full every month. I am using credit to get benefits, not to finance a life style. I have a perfect credit record and will continue to do so, but FICO can't seem to understand this form of credit card use, so it ranks me lower than seems logical with a perfect track record and my resources. That's my issue.

I am not sure what is "inconsistent" about my points - could you clarify?

As to your two mortgage questions - #1 - of course I have higher return investments (including non-public investments). I also have lower ones (money market accounts, and, unfortunately some stock market mistakes - oh well....). Paying off the mortgage was a minor use of funds, and it fit into the overall portfolio reasonably well. Smallfry has a valid point as well. #2 - I am telling you that. Deduction phase-out is a back door increase in tax rates that I have lived with for years.

Thanks for the idea to read more in the forum; I plan to of course. I do sort of understand how to "game the FICO system" reasonably well, just pay down cards before the billing cycle dates since mid-month data is not reported and so forth. The real issue is why the standard analytics cannot reflect the facts of my payment history without that game playing.

So, a simple question - shouldn't years of payments in full every month trump the "concern" about my card usage that suppresses the score? In other words, isn't FICO wrong?

Re: FICO doesn't understand the credit card game

MidnightVoice — Tue, 13 Nov 2007 15:44:24 GMT

just_curious wrote:

So, a simple question - shouldn't years of payments in full every month trump the "concern" about my card usage that suppresses the score? In other words, isn't FICO wrong?

No. No.

Basically, FICO is a statistical analysis, and does not (and cannot) treat individuals as individuals. 30 plus years of perfect payments is only 7 years - only the last 7 years are counted in the score. 35% of the FICO score is utilization of of available credit. Income is NOT a factor - FICO does not know your income.

So statistically, someone with your pattern over the last 7 years produces the score you have.

If you have a need to increase your scores, then paying balances before they are due might well do it. It would be an interesting experiment anyway

Re: FICO doesn't understand the credit card game

haulingthescoreup — Tue, 13 Nov 2007 17:42:53 GMT

@just_curious wrote:
I prefer not to provide specific $ numbers, but suffice it to say that my income and net worth are more than sufficient to assure that I can meet any possible credit card utilization. To clarify, I pay my cards in full every month. I am using credit to get benefits, not to finance a life style. I have a perfect credit record and will continue to do so, but FICO can't seem to understand this form of credit card use, so it ranks me lower than seems logical with a perfect track record and my resources. That's my issue.

So, a simple question - shouldn't years of payments in full every month trump the "concern" about my card usage that suppresses the score? In other words, isn't FICO wrong?

Edit:

Whoops, just saw where you said that you are aware of what I posted below. But when you say that FICO is somehow flawed for not knowing what your balance is at other times, how would you suggest that it get this data? It's silly to criticize a scoring methodology for failing to consider information to which it has no access.

Anyway, original post:

What's happening with your scoring is that you don't understand or haven't thought through the way that your payment patterns are reported.

You are PIF'ing (paying in full), which is great. But your credit reports, and therefore your FICO scores, don't know it. Why? Because you're paying at the wrong time in your payment cycle --AFTER your balance is reported to the credit reports. All that anyone can tell from reading 6 months' worth of your credit reports is that with all your great, high limit cards, you seem to be carrying a hell of a balance. So they will see one month, 90% utilization, then 88%, then 97%, and so forth. They can't tell that you've paid them down and charged them up again. You look like someone who's maxed out, eating Kraft macaroni and cheese, and selling plasma to pay your bills.

If you want your potential creditors to know that you are a great credit risk, PIF your cards about 4-5 days BEFORE they report to the credit bureaus. (It's pretty easy to find out the date for each one.) Let 2 or 3 --fewer than half-- report at any given time. After 31 days of this, where every card now shows that you are only using $19.37 on a $30K card, your scores will blow the roof off.

There's nothing dumb about FICO scoring. You just have to give it the proper data to work with.

Message Edited by haulingthescoreup on 11-13-2007 09:42 AM

Re: FICO doesn't understand the credit card game

Dawn — Tue, 13 Nov 2007 17:52:10 GMT

haulingthescoreup wrote:

There's nothing dumb about FICO scoring. You just have to give it the proper data to work with.

LOL! ... Are you SURE about that? I guess if I don't read any of the "reason" responses we get on MyFico reports ... I might could go there.

I do see your point about the method to the madness ...

Re: FICO doesn't understand the credit card game

just_curious — Tue, 13 Nov 2007 18:51:50 GMT

haulingthescoreup wrote:

There's nothing dumb about FICO scoring. You just have to give it the proper data to work with.

What I see is a need to become expert at gaming the system - which shouldn't be necessary. Look, the cards are PIF every month - FICO should be able to distinguish between carried over balances and cards which are PIF since those data are easily available (for example, I never have paid any interest on any card, ever). If I use a high % of the CL and pay it off every month for years, it is really just a sign that CCCs don't have the ability to give high enough credit limits without me providing tax returns and other information I choose not to give them. That's one reason I carry the unlimited cards as well.

So, I think a metric which says high usage of limits, without considering other facts (the use of rewards cards, always PIF, etc...) is missing a level of sophistication that is odd, since it shouldn't be that hard to understand what is going on here....

And, remember, in the face of that, I am apparently being penalized as well for not having a mortgage or other installment debt....

Re: FICO doesn't understand the credit card game

MidnightVoice — Tue, 13 Nov 2007 19:01:34 GMT

just_curious wrote:

What I see is a need to become expert at gaming the system -

It is a game, as I have said for ages, and if one wants or needs a high score, one needs to play it. Life is not fair!

just_curious wrote:

Look, the cards are PIF every month - FICO should be able to distinguish between carried over balances and cards which are PIF since those data are easily available (for example, I never have paid any interest on any card, ever).

That information is not reported, hence not avaiulable at all, so FICO can't use it.

My score languished in the mid 600s for years because I didn't know how the game was played. So I learned, and I play the game, and now I have what I want. A high score means I have available to me the CCs and the mortgage rates that I want. OK, so I have to play the game to get it - but again, that is life.

Re: FICO doesn't understand the credit card game

smallfry — Tue, 13 Nov 2007 22:47:10 GMT

Just Curious you really only need FICO scores over 720 to get just about the best rates on a car loan or a mortgage. 760 is best and above that is just for bragging rights. I would bet that even without a reporting car loan or home mortgage you would gain quite a few points in a month if you move your payments up to before the statement cut dates. Experiment a little. Try letting 0 report then 1 then 2 and so on. See what works best.

Re: FICO doesn't understand the credit card game

fused — Tue, 13 Nov 2007 22:56:02 GMT

Unless I'm blind and the OP posted their scores, this discussion cannot move along until the original poster shares their scores.

Re: FICO doesn't understand the credit card game

MidnightVoice — Tue, 13 Nov 2007 23:04:30 GMT

fused wrote:
Unless I'm blind and the OP posted their scores, this discussion cannot move along until the original poster shares their scores.

just_curious wrote:

Background - I have a good score with all three credit bureaus, but only at around the 60% of the population level.

which in theory is around 700 - 740 if my memory of the distribution figures holds true, with 723 being the average. Depends what he means by 60% of the population level

Re: FICO doesn't understand the credit card game

fused — Tue, 13 Nov 2007 23:12:23 GMT

MidnightVoice wrote:

fused wrote:

Unless I'm blind and the OP posted their scores, this discussion cannot move along until the original poster shares their scores.

just_curious wrote:

Background - I have a good score with all three credit bureaus, but only at around the 60% of the population level.

which in theory is around 700 - 740 if my memory of the distribution figures holds true, with 723 being the average. Depends what he means by 60% of the population level

Problem here is 700 = good and 740 = very good. Hopefully the OP returns and posts their exact scores and not a range in scores.

Re: FICO doesn't understand the credit card game

RobertEG — Wed, 14 Nov 2007 02:10:50 GMT

A blistering post upon reality! Never, ever, has anyone suggested that FICO is the begin or end all of credit worthiness. But if FICO becomes an issue in any credit situation, you dont have to agree that their scoring systems makes sense. You just have to live with it, and if you need it in any credit decision, know the rules of the FICO road. That is what this forum is all about... not seeking logic, but seeking wisdom. Pontification upon the rights or wrongs of FICO algorithm is like pissing in the wind. It only soils your own jeans!

Re: FICO doesn't understand the credit card game

haulingthescoreup — Wed, 14 Nov 2007 03:50:58 GMT

RobertEG wrote: That is what this forum is all about... not seeking logic, but seeking wisdom.

Nope, sorry, I want logic! lol

Re: FICO doesn't understand the credit card game

gNaRKiLL — Wed, 14 Nov 2007 21:27:19 GMT

This is a great thread being new to this game its all starting to make sense to me.

Re: FICO doesn't understand the credit card game

just_curious — Wed, 14 Nov 2007 21:55:45 GMT

RobertEG wrote:
A blistering post upon reality! Never, ever, has anyone suggested that FICO is the begin or end all of credit worthiness. But if FICO becomes an issue in any credit situation, you dont have to agree that their scoring systems makes sense. You just have to live with it, and if you need it in any credit decision, know the rules of the FICO road. That is what this forum is all about... not seeking logic, but seeking wisdom. Pontification upon the rights or wrongs of FICO algorithm is like pissing in the wind. It only soils your own jeans!

Well, that may be correct, although my jeans are clean at the moment. Here's the issue - in a world where credit scores are checked by everyone from landlords to employers, you have to wonder how Fair Issac gets away with such an illogical approach. That is what got me started on all this - the complete lack of logic. And please understand, the info to prove I pay off all my cards completely every month is readily available (e.g. - no interest charges). Why wouldn't that be relevant to FICO even without income and asset info????? How can a credit score be valid without that data point?

Please note - my personal situation is unaffected by this issue (although I know others not so lucky). I don't need credit at the moment, and I understand that the Private Bankers who want my business can read my personal financial info and "get over" the FICO problem to realize I am "worthy" of the most favorable rates out there.

To respond about my own scores - the estimates that I am in the 720 to 740 area are right, at least the last time I checked them (a few weeks ago). I would guess mine may jump around quite a bit if the usage factor is as big a deal as many say it is (Yes - I have read that thread of speculation, so I know there is some uncertainty). I used credit cards for lots of big ($10,000 and up) purchases, and manage my selection of cards for these charges for the rewards I prefer at the time, not to avoid using my credit limits.

By the way, I also have some cards with good limits (>$25,000) which have very low usage every month. Apparently the algorithm looks to see if one or two (some say three) cards are above 50% and deducts points for that, even if there are others at 0.1% or 0.2%. Again - if they just considered that the card is PIF every month, they might start to get it right.

How hard would that be after all????

Re: FICO doesn't understand the credit card game

MidnightVoice — Thu, 15 Nov 2007 01:29:56 GMT

just_curious wrote:

. And please understand, the info to prove I pay off all my cards completely every month is readily available (e.g. - no interest charges). Why wouldn't that be relevant to FICO even without income and asset info????? How can a credit score be valid without that data point?

I do not believe that the information mentioned above is available to Fair Isaac. Hence they do not know if you pay off every month or not. And it is valid because it is what it is - a statistical estimation of your credit worthiness as defined by a certain set of criteria

just_curious wrote:

By the way, I also have some cards with good limits (>$25,000) which have very low usage every month.

Try calculating your own utilization - it is possible that cards over $20,000 are not considered bas revolving credit

just_curious wrote:

Well, that may be correct, although my jeans are clean at the moment. Here's the issue - in a world where credit scores are checked by everyone from landlords to employers, you have to wonder how Fair Isaac gets away with such an illogical approach.

The statistics would suggest that it NOT illogical - statistically it works.

So if you don't need credit at the moment - ignore your scores. If you ever do need credit - just play the game. Remember the introduction to "Princess Bride" - one needs to learn the lesson that life is not fair, and that needs to play the game.

Re: FICO doesn't understand the credit card game

Anonymous — Thu, 15 Nov 2007 06:50:10 GMT

FICO does NOT understand modern credit card usage, indeed. I for one do not like cash. I dont like to be short of 5 bucks at the grocery store. I dont like to go to the bank with 5 lb of change to count it and deposit it. What do I do? I charge to the credit card and pay the balance off in full before the due date. Also, I would be STUPID to not pay with department store cards and get 20% or more off on my purchases.