topic Re: FICO is a Scam in Understanding FICO® Scoring

FICO is a Scam

Anonymous — Tue, 17 Apr 2018 22:33:09 GMT

I want to preface this post with the following: I made some bad financial choices earlier in life, no bankruptcies, but I did default on a couple of student loans and I got behind paying 2 credit cards and a cable bill that I disputed. My score hovered around 620-650.

Fast forward 5+ years, I am making considerably more money, my credit utilization is about 15% and I have not missed a single payment in 5+ years. I recently made a payment to a card of $3k, bringing the balance down to ~$600, I figured I would check my score to see what effect it had. Guess what, Equifax score dropped 25 points, Transunion and Experian both went up 1 point. So you may be thinking, "well that large payment actually hurt your score because it shows inconsistency". However, I consistenly make $2K payments per month.

This piqued my interest so I went and looked back at the previous 2 years worth of credit scores (FICO 8), no missed payments, steady salary increases over that time and my score has basically hovered about 5-10 points in the same range.

Then I checked my FICO 9 score and low and behold every score was higher, ranging from 12 points to 33 points higher.

The conundrum (scam) that is FICO, I make a larger than normal payment and I get penalized, I make consistent payments for 2 years and my score hardly moves.

Am I really being punished for stuff that either has fallen off my credit report (greater than 7 years) or from stuff that falls into the 5+ years but less than 7 years bucket?

Seems like a credit scoring system should naturally reward people that show a consistent payment pattern, especially over a duration of 5+ years rather than flatlining their score.

I would appreciate some feedback and hopefully advice from people that were/are in a similar situation. Looking to have my mind changed about FICO, but presently I do not see that happening.

*Score hovers around 700

**Houshold Income $175K+

****DTI Ratio = 33%

Re: FICO is a Scam

Anonymous — Tue, 17 Apr 2018 22:28:07 GMT

Nah! totally disagree...

Re: FICO is a Scam

Anonymous — Tue, 17 Apr 2018 22:32:56 GMT

FICO 9 is available, when lenders choose to use it, you’ll benefit from it. How does that make FICO a “scam?” How about demanding lenders use FICO 9 instead of FICO 8 or whatever else they may be using?

Re: FICO is a Scam

Anonymous — Tue, 17 Apr 2018 23:26:28 GMT

Hello The Wood2311! Welcome to the forums and I am glad you are with us.

You may end up getting responses to your post that you don't intend, based on your word choice in the subject line. A scam is a form of deliberate fraud -- like a ponzi scheme, or the Nigerian con artists, or when a good looking guy dates lonely older women and takes their money. It has to involve deliberate deception involved in getting someone to give them your money. You are not giving FICO any money, so they can't be scamming you. The banks and CC issuers who do pay them money are pretty happy with the scores they buy from FICO, a company that is very transparent about what the scores can be expected to assist the bank with (assessing risk statistically).

I think you may just mean question, puzzle, or enigma -- since you at one point put the word conundrum in parentheses after scam. People here may miss that and might end up diving down a rabbit hole based on the word scam -- one that perhaps you do not intend.

That said, I think you raise some good questions and I will be glad to respond more in just a bit. I think your questions have some meaningful answers, but I just wanted to throw this out first. Hope to write a bit more in the next hour.

Re: FICO is a Scam

Anonymous — Tue, 17 Apr 2018 23:32:27 GMT

A flat credit score over 5 years with an increase in income and duration of time since bad credit behavior....

The scam is in FICO preserving the interest of lenders/reporting agencies by making additional money for said lenders off people for bad decisions that realistically have no relevance to present circumstances. By keeping people's scores low they benefit their employers, seems like a conflict of interest, especially when the time comes to renew a contract with a lender or reporting agency. This may be a false assumption, but I cannot imagine I am the only one experiencing a flat score over 5 years. Especially, when I come to this website and hear the extreme opposite, boasts of people increasing their scores by 100 points in a year, short of winning the lottery or becoming independently wealthy I don't see how that is possible.

Think about it, do I get to choose the report or score that is used for a transaction? No, I can shop multiple lenders and use the one that is giving the best rate, but that still does not guarantee that they are using my highest score or that I am getting the best rate. FICO or any scoring company should not favor lenders or borrowers, but rather be an impartial judge to provide information to both parties.

Re: FICO is a Scam

Anonymous — Tue, 17 Apr 2018 23:52:36 GMT

Income is not a factor that is figured into FICO scoring at all. The fact that your income now may be significantly greater than it was 5 years ago has no bearing at all on your scores.

As for making large payments and expecting your score to increase, it all depends on percentages and threshold crossings, not dollars. It's very important to understand this, otherwise you'll drive yourself mad.

Cornelius may make a $450 credit card payment and see his score increase 80 points.

Rupert may make a $7000 credit card payment and see his score increase 0 points.

Those pieces of information without profile data to go along with them may seem puzzling. What you may not know is that Cornelius only has one credit card with a $500 limit. He had a balance of $490 (maxed out) and paid it down to $40 (less than 8.9% of limit which is ideal). Regarding Rupert, you didn't know that he paid down his $40,000 credit card that had an $11,000 balance to $4000. In doing so, he crossed no utilization threshold on that card and he also has a bunch of other high limit cards, so his aggregate (overall) utilization barely budged as well. This is why he gained 0 points from making a $7000 payment, where Cornelius gained 80 points from paying a payment less than 1/10 that size.

Re: FICO is a Scam

Anonymous — Tue, 17 Apr 2018 23:54:14 GMT

OP - As you accurately point out, you can shop around and choose any lender you wish, or none at all if you wish. The lenders choose what available products they want just as you do as long as they comply with law and regulation. As you may or may not know, lenders are highly regulated and governed by a literal plethora of laws. They are some lenders who use FICO 9, and you may want to shop around for them and give them your business, that’s how capitalism works. There is no system where the borrower demands or dictates what score or scoring system is used for them as a borrower. Whether you are similarly situated to compare yourself to others you’ve seen here making triple digit improvements to their scores is nearly impossible to say in the limited statistics you’ve provided. Additionally, there are so many additional variables that come into play that no two borrowers are exactly alike. While we share data and try to identify trends and calculate laymen’s odds, we are just making the most educated guess we can since any lender has an algorithm and/or human element that cannot fully be accounted for. While I can empathize with your obvious frustration, I believe you are directing it in the wrong place. This is very much more of a philosophical discussion than one that can or will be resolved with frustration and accusations. I do wish you luck and hope that some of my more leaned and articulate forum users and/moderators can provide you the answers and/or guidance that will satisfy you.

Re: FICO is a Scam

Anonymous — Wed, 18 Apr 2018 01:58:27 GMT

Again, good questions. My thoughts/answers in blue below.

Am I really being punished for stuff that either has fallen off my credit report (greater than 7 years)...?

No. If something has fallen off your report, it cannot affect your score. The score is generated purely based on what is in your report. (This is also why your increasing income hasn't helped your score, since a person's income is not part of his credit report.)

.... or from stuff that falls into the 5+ years but less than 7 years bucket?

Yes. For sure. Negative items (lates, collections, chargeoffs, liens, judgments, public records, etc.) can hurt your score a lot, assuming they appear on your report.

I consistenly make $2K payments per month.... Seems like a credit scoring system should naturally reward people that show a consistent payment pattern...

Throughout almost all of FICO's history the three credit bureaus have not collected payment history. They have recorded whether a creditor claims you are 30 days or more late on a payment, but not the amount you paid, or the dates. You could be paying your cards in full every month for the last five years and FICO would not be able to distinguish that from a person who never paid in full and was often up to 29 days late.

A few years ago with the advent of something called "trended data" it looked like this might change. Future credit scoring models, using these new data, would be able to do exactly what you expect -- see how much you are paying, when you paid it, and compare that with how much your CC bills were each month. It would have enabled scoring models to improve their accuracy while enabling customers to not worry about their credit.

Unfortunately the many credit card issuers out there have not gotten on the TD bandwagon (in terms of what they report to the three bureaus) and until they do, the big FICO models can't use those better approaches, since FICO can only use the data it gets in your report.

Final thoughts:

If your concerns are chiefly practical, you are in luck. Any number of people here can lay out some very actionable strategies on how you can improve your scores, whether FICO 8, FICO 9, or the much older mortgage scores. They'll need to know a lot more about exactly what is on your reports, but once they do know, improving your scores should be pretty easy.

Re: FICO is a Scam

trusty — Wed, 18 Apr 2018 00:44:14 GMT

It's okay to be frustrated that it takes at least 7 years for derogatory items to fall off. But, the score model itself is certainly not to blame.

Blame your significant other or others, for mismanaging your finances... if that's what happened.

Otherwise, be proactive and find novel ways to dispute the veracity of any remaining unpaid derogatory items.

Unfortunately, paying old lates is not the way to improve your score. Rather, the key is too never let negatives show up, in the first place. Or, to get any negatives completely stricken from your reports. Easier said than done, of course.

At this point, the best option you have is probably writing goodwill letters to the executive offices of whomever it is that you're paying 2k a month to.

Otherwise, just wait a couple more years to buy that house, or whatever. Take the previous 7 years as a lesson learned.

P.S. Being in a such a hurry to get back into debt - and blaming the system - sounds to me like the scoring algorithm probably had it right the first time.

Ultimately, the scoring model doesn't care whether you're poor or a high earner. If you're not good with managing your finances... it doesn't matter how much money you make.

Re: FICO is a Scam

Anonymous — Wed, 18 Apr 2018 01:32:40 GMT

@trustyUltimately, the scoring model doesn't care whether you're poor or a high earner. If you're not good with managing your finances... it doesn't matter how much money you make.

100% correct. It's like when people ask how Mike Tyson went broke when he earned $296M. Simple. Spend $298M.

Re: FICO is a Scam

pipeguy — Wed, 18 Apr 2018 01:48:40 GMT

I understand your frustration, the FICO model is hard to figure out sometimes and why is that each of my CRA's numbers are different? That being said, the value of a near-universal credit scoring system, even with it's at times flaws, is that not only is overall access to credit greatly expanded, written paperwork reduced and universal mobility possible. Think about it this way, at one time if you needed a car loan or a bridge loan say for holiday spending you went into your local bank where you had an account - that lender knew you and your history and would either say no, or if it was approved the bank would tack on an interest rate that protected their risk (how do you think your small bank "lates" would work out?).

Then came credit cards, first local and store cards, then the bank cards (MC/V) AmEx and Diners were mostly business cards, Discover started as a mix of store card and semi-universal as the NEC Card. You can look up the history of these companies and see how they have evolved.

To expand on universal credit cards (mostly MC/V, originally known as Master-Charge and BankAmericaCard or BAC) a lot of lenders wanted in on the action, thus the need for a somewhat universal "risk measure" which Fair Isaac developed. With FICO scoring, you can online get approved for a card or car loan or personal loan or even a mortgage from a lender in New York or Delaware or Utah or North Carolina. In addition say you move from St Louis to Boston, you access to credit doesn't change, nor do you toss out a local bank history and have to start from scratch with a new local bank especially when the transmission in your car goes out and you need access right now to $2000.

FICO is the defacto standard in the lending industry, there are others (Vantage, etc) but FICO is almost universally relied on by lenders. FICO does a lot more than just offer scores, just look at their company business page they sell information and scores to lenders, collection agencies, employers, etc - it's their business product, measuring risk and return.

I know its great when all your scores are 780-820 (the gold ring is 850, but that makes no difference) and to many on these forums it's an obsession to track, tweak, work and live to get higher scores, but that's just a game some play. FICO scoring has opened up access to credit for millions of consumers in a way that would never be possible without "blind scoring". I don't always agree with what causes the hills and valleys throughout the year, but its anything but a "scam".

Re: FICO is a Scam

egghead88 — Wed, 18 Apr 2018 01:52:47 GMT

Just because you haven’t taken the time to research FICO scoring doesn’t make it a scam. I would highly suggest that you spend some time of the reviewing FICO scoring models and develop a plan to improve your score.... thats all I have to say about your post- Forrest Gump voice

Re: FICO is a Scam

NRB525 — Wed, 18 Apr 2018 03:43:03 GMT

@Anonymous wrote:

The scam is in FICO preserving the interest of lenders/reporting agencies by making additional money for said lenders off people for bad decisions that realistically have no relevance to present circumstances. By keeping people's scores low they benefit their employers, seems like a conflict of interest, especially when the time comes to renew a contract with a lender or reporting agency. This may be a false assumption, but I cannot imagine I am the only one experiencing a flat score over 5 years. Especially, when I come to this website and hear the extreme opposite, boasts of people increasing their scores by 100 points in a year, short of winning the lottery or becoming independently wealthy I don't see how that is possible.

Many of the situations where you might see someone with a 100 point increase are where all their baddies are bunched in the past, and over the course of the year, the last of all those baddies drop off. A BK that filed seven years ago, some other late payments at about the same time, maybe a government lien, when the person when through troubles, those all age together.

While those are on the report ( your current situation with some baddies ) they will put a ceiling on how high the score can go. Once the last of those baddies drops off, when all of them are gone, then the payment history only shows good payment history for 7 years, and the score is able to increase, often quite a lot.

Your comments are quite common here. Folks come here looking for advice about how to improve their score, and sometimes cite the fact that "I have not missed any payments for 12 months" or pick a time period. That's nice, and certainly important in rebuilding your credit score, however lenders have to sort through thousands of credit applications. They use FICO scores to get a snapshot view of the kind of borrower this person is. "Over the last seven years, what sort of borrowing behavior did this applicant have?" Rather than wade through a potentially complicated credit report, line by line ( many here have 20 or 30 or more accounts over time) the lender pays FICO to give them a snapshot score. That score is standardized, weighing the factors that are available.

The final thought, remember that borrowing and credit are all about trust. If you have broken the trust on a loan agreement in the recent past ( seven years on the scoring models ) that indicates a possibility you might break the trust again. The factors in why a payment was missed or why BK was necessary are something to discuss with a loan officer, but as a starting point, that trust score is where most of the banks begin. It simplifies their workday.

Re: FICO is a Scam

Anonymous — Wed, 18 Apr 2018 03:49:31 GMT

Increasing FICO score by 100 points in a year? People have been able to accomplish that in a month or even in a day, depending on how dramatic the credit profile changes are. It doesn't make FICO scoring a scam.

Re: FICO is a Scam

sarge12 — Wed, 18 Apr 2018 04:56:38 GMT

If the OP would research enough it is possible he could discover why that 1 score dropped 25 points. It could be that CRA has not gotten the updated balances yet, or even that some of the info is not reported to that CRA at all. Not all creditors report to all of the big 3 CRA's. A 25 point difference suggests that the Utilization reported there would be a likely suspect, or maybe a neg that has fallen off the other 2 but not that one yet. It is sometimes difficult to know why a score increased or decreased, but can change a good bit once some thresholds are met. Some of these may be over 29% utilization on a single card, or over 9% overall. The accounts being considered may also have your AAoA showing lower on that 1 CRA, where the other 2 might have crossed a threshold...3yr AAoA, 5yr AAoA...whatever! The best way to know is to pull all 3 credit reports at the same time and deep dive looking for differences between the 3. There may even be errors you can dispute. What it is not though is a scam, and the CRA could care less what our scores are. They only care that it has a good record of being predictive of defaults and delinquincy. That is the CRA's bread and butter...assigning a score that assesses risk of the debtor to minimize the losses to the lenders, and yes, charge more in interest for a higher risk debtor to compensate for the higher number of defaults. That being said though...mistakes can and do happen. I will say if you do AZEO and always PIF everything the scores will likely be very close to the same. It is very difficult to not show some swings carrying a balance.

Re: FICO is a Scam

909 — Wed, 18 Apr 2018 05:11:12 GMT

So many possible responses...
- Just because you haven’t taken time to become educated about the system doesn’t mean it’s s scam...
- Just because you’ve made bad choices in the past doesn’t mean it’s a scam...
- Your income has nothing to do with credit worthiness (see the first bullet)...
- True, there are some oddball equations involved, but the people making these decisions (about credit scoring) know a lot more about forecasting behaviors than anyone on this list and those decisions are based on millions of observations, not just things that some of us may have personal opinions about.

Keep asking questions, keep learning. You are in control of your credit score.

Re: FICO is a Scam

sarge12 — Wed, 18 Apr 2018 05:23:24 GMT

@909 wrote:
So many possible responses...
- Just because you haven’t taken time to become educated about the system doesn’t mean it’s s scam...
- Just because you’ve made bad choices in the past doesn’t mean it’s a scam...
- Your income has nothing to do with credit worthiness (see the first bullet)...
- True, there are some oddball equations involved, but the people making these decisions (about credit scoring) know a lot more about forecasting behaviors than anyone on this list and those decisions are based on millions of observations, not just things that some of us may have personal opinions about.

Keep asking questions, keep learning. You are in control of your credit score.

+100....I could not agree more....Anyone can in time get 800+ scores, the key is to learn what is in the score and act accodingly. Everyone should read "Learn About Scores" section above, and every single sub-catagory in it.

Re: FICO is a Scam

Anonymous — Wed, 18 Apr 2018 10:02:52 GMT

I really am enjoying the thread OP started my interest was peaked on the notion of FICO being a kind of scam.

Re: FICO is a Scam

Anonymous — Wed, 18 Apr 2018 12:50:34 GMT

Since the OP hasn't returned a post in this thread, I'm hopeful that his time has been invested in improving his knowledge through reading about credit on this forum.

Re: FICO is a Scam

NRB525 — Wed, 18 Apr 2018 13:39:25 GMT

@Anonymous wrote:
Since the OP hasn't returned a post in this thread, I'm hopeful that his time has been invested in improving his knowledge through reading about credit on this forum.

Maybe you spend too much time on MyFICO? The OP original post was only yesterday afternoon. Chill.

topic Re: FICO is a Scam in Understanding FICO® Scoring

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