topic Re: Experian Defies Logic in Understanding FICO® Scoring

Experian Defies Logic

Anonymous — Thu, 29 Oct 2020 16:12:49 GMT

I recently sold my manufacturing business of 20 years. With the proceeds from the sale I decided to pay off my primary residence. (I did not run out and buy a Lamborghini) Normally, this would be viewed as the right thing and no reason for someone’s credit worthiness to drop, right? On the contrary, the note was satisfied by being paid in full, and now I have a very large asset that is free and clear. This asset could be used as collateral for a loan, thus increasing my credit worthiness. A logical person would think so, but not Experian! My credit score dropped 56 points! (I have screen shots showing on October 15th my note was satisfied with my bank. On that same date, my credit score dropped 56 point. Too bad we cannot post images!)

This defies all logic in my opinion. An interesting question is presented by Experian when they place the verbiage on the screenshot that says “What now?” What now? Perhaps I will call the company that I now believe is saying that I am a higher credit risk because I live in my house that is paid for. However, there is NO WAY IN SWELL I can speak with anyone at Experian. I have spent hours trying call Experian and speak with someone.

Follow this logic:

A) I no longer have a mortgage.
B) I have more disposable income (to get a loan and buy that Lamborghini, using the house as collateral?)

I would think so, but if I did want to obtain a loan I would now pay a higher interest rate to a lender because my rating is no longer “exceptional”. This is not my fault. This is 100% Experian’s fault that I would pay a higher interest rate!

Here’s another scenario: What if I paid this home off to bank the proceeds in order to move and buy another primary residence? My APR would be higher! Just look at the verbiage in the screenshot. It literally states “You are now viewed as more of a credit risk to creditors”

Here is where Experian falls short as a credit reporting agency:

Experian does not consider a person’s income
Experian does not consider a person’s assets
Experian does not consider a mortgage payoff as a good thing
Experian does not decipher credit card usage data properly
Experian does not answer to the consumer

Does anyone have advice? Better yet in the words of Experian "What Now?"

Re: Experian Defies Logic

SouthJamaica — Thu, 29 Oct 2020 19:34:53 GMT

@Anonymous wrote:

I recently sold my manufacturing business of 20 years. With the proceeds from the sale I decided to pay off my primary residence. (I did not run out and buy a Lamborghini) Normally, this would be viewed as the right thing and no reason for someone’s credit worthiness to drop, right? On the contrary, the note was satisfied by being paid in full, and now I have a very large asset that is free and clear. This asset could be used as collateral for a loan, thus increasing my credit worthiness. A logical person would think so, but not Experian! My credit score dropped 56 points! (I have screen shots showing on October 15th my note was satisfied with my bank. On that same date, my credit score dropped 56 point. Too bad we cannot post images!)

This defies all logic in my opinion. An interesting question is presented by Experian when they place the verbiage on the screenshot that says “What now?” What now? Perhaps I will call the company that I now believe is saying that I am a higher credit risk because I live in my house that is paid for. However, there is NO WAY IN SWELL I can speak with anyone at Experian. I have spent hours trying call Experian and speak with someone.

Follow this logic:
A) I no longer have a mortgage.
B) I have more disposable income (to get a loan and buy that Lamborghini, using the house as collateral?)

I would think so, but if I did want to obtain a loan I would now pay a higher interest rate to a lender because my rating is no longer “exceptional”. This is not my fault. This is 100% Experian’s fault that I would pay a higher interest rate!

Here’s another scenario: What if I paid this home off to bank the proceeds in order to move and buy another primary residence? My APR would be higher! Just look at the verbiage in the screenshot. It literally states “You are now viewed as more of a credit risk to creditors”

Here is where Experian falls short as a credit reporting agency:
Experian does not consider a person’s income
Experian does not consider a person’s assets
Experian does not consider a mortgage payoff as a good thing
Experian does not decipher credit card usage data properly
Experian does not answer to the consumer
Does anyone have advice? Better yet in the words of Experian "What Now?"

It's not Experian, it's FICO. FICO penalizes us for (a) not having any open loans and (b) not having any revolving balances.

Recently, a group of FICO insiders appeared in this forum for questions and answers, admitted that these penalties exist, and gave us their explanations for them, which I do not find very convincing.

For example :

"The data shows that going from low installment loan utilization to no installment loan balances reported (and thus 0% installment loan utilization) is slightly more indicative of future risk."
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score-Experts-Ask-us-anything/m-p/6137485#M176981

As to your specific questions:

~~Experian~~ [FICO] does not consider a person’s income

True

~~Experian~~ [FICO] does not consider a person’s assets

True

~~Experian~~ [FICO] does not consider a mortgage payoff as a good thing

True

~~Experian~~ [FICO] does not decipher credit card usage data properly

Agreed

~~Experian~~ [FICO] does not answer to the consumer

True. They work for lending institutions.

Does anyone have advice? Better yet in the words of Experian "What Now?"

Yes. You can maximize your scores by doing the following, which are of no economic consequence to you but will vastly improve your scores:

(a) Take out a small share secured loan with a credit union like NFCU or Penfed and pay it down immediately to 9% of the original loan amount; that will cover you on the installment loan penalty.

(b) Let one bank card report a small balance each month before you pay it off; that will cover you on the revolving account penalty [make sure the card you use to report a balance is not a Chase card]

Re: Experian Defies Logic

Anonymous — Tue, 03 Nov 2020 16:48:47 GMT

@Anonymous wrote:

I recently sold my manufacturing business of 20 years. With the proceeds from the sale I decided to pay off my primary residence. (I did not run out and buy a Lamborghini) Normally, this would be viewed as the right thing and no reason for someone’s credit worthiness to drop, right? On the contrary, the note was satisfied by being paid in full, and now I have a very large asset that is free and clear. This asset could be used as collateral for a loan, thus increasing my credit worthiness. A logical person would think so, but not Experian! My credit score dropped 56 points! (I have screen shots showing on October 15th my note was satisfied with my bank. On that same date, my credit score dropped 56 point. Too bad we cannot post images!)

This defies all logic in my opinion. An interesting question is presented by Experian when they place the verbiage on the screenshot that says “What now?” What now? Perhaps I will call the company that I now believe is saying that I am a higher credit risk because I live in my house that is paid for. However, there is NO WAY IN SWELL I can speak with anyone at Experian. I have spent hours trying call Experian and speak with someone.

Follow this logic:
A) I no longer have a mortgage.
B) I have more disposable income (to get a loan and buy that Lamborghini, using the house as collateral?)

I would think so, but if I did want to obtain a loan I would now pay a higher interest rate to a lender because my rating is no longer “exceptional”. This is not my fault. This is 100% Experian’s fault that I would pay a higher interest rate!

Here’s another scenario: What if I paid this home off to bank the proceeds in order to move and buy another primary residence? My APR would be higher! Just look at the verbiage in the screenshot. It literally states “You are now viewed as more of a credit risk to creditors”

Here is where Experian falls short as a credit reporting agency:
Experian does not consider a person’s income
Experian does not consider a person’s assets
Experian does not consider a mortgage payoff as a good thing
Experian does not decipher credit card usage data properly
Experian does not answer to the consumer
Does anyone have advice? Better yet in the words of Experian "What Now?"

@Anonymous I hate to tell you, but it's not Experian or FICO's fault with all due respect. It is your fault for not educating yourself about how credit works before you took your actions. It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you

you are a higher risk with the mortgage paid than with it open. The data shows that and the reason is, you're much more likely to be able to acquire a larger loan due to having one less big monthly obligation, imho.

Stated differently, are you more likely to get a bigger loan if you have a mortgage with monthly payments or if you don't have a mortgage with monthly payments? Well, if you don't have a mortgage and that additional monthly obligation increasing dti, lenders are more apt to give you a greater amount of credit/loan due to your lower obligations; however, when you have greater monthly obligations, they are less likely to extend as much additional credit to you.

So the fact that you have greater access to credit makes you a greater risk. Is that not logical to you?

And you were not penalized for closing the mortgage, I might point out, you were rewarded for having a greatly paid down mortgage. When you no longer have that, the reward is repossessed, basically.

You're rewarded for showing installment activity, you're rewarded more as the B/L is reduced; however once it's paid off and closed, that B/L reduction reward disappears. They gave you the reward for years now, but your financial situation has changed now. They're not going to continue to reward you for an almost paid off mortgage when you no longer have one.

Credit scores are not allowed to consider income and assets, that would be discriminatory. Lenders can and will consider it though.

yes a paid off mortgage is considered to be a good thing by Experian and if the tradeline were deleted you would see an additional drop in score, but a nearly paid off mortgage is considered a whole heck of a lot better.

you'll have to explain what you mean about the credit card issue that's ambiguous.

Experian's answers to it shareholders, the FTC, CFPB, and, since it answers to it shareholders and the majority of its business is from lenders, they definitely do their best to a please lenders not consumers. However they still must follow laws and they do have to answer to us to a limited degree due to laws that were made to protect us.

as SJ said the SSL strategy can return most points.

Re: Experian Defies Logic

Anonymous — Mon, 02 Nov 2020 18:44:36 GMT

@Anonymous

FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts

2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]

3. I have disposable income that I did not have before

How is this not logical?

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".

Re: Experian Defies Logic

SanDiegoCredit — Mon, 02 Nov 2020 19:12:00 GMT

@SouthJamaica wrote:
@Anonymous wrote:

I recently sold my manufacturing business of 20 years. With the proceeds from the sale I decided to pay off my primary residence. (I did not run out and buy a Lamborghini) Normally, this would be viewed as the right thing and no reason for someone’s credit worthiness to drop, right? On the contrary, the note was satisfied by being paid in full, and now I have a very large asset that is free and clear. This asset could be used as collateral for a loan, thus increasing my credit worthiness. A logical person would think so, but not Experian! My credit score dropped 56 points! (I have screen shots showing on October 15th my note was satisfied with my bank. On that same date, my credit score dropped 56 point. Too bad we cannot post images!)

This defies all logic in my opinion. An interesting question is presented by Experian when they place the verbiage on the screenshot that says “What now?” What now? Perhaps I will call the company that I now believe is saying that I am a higher credit risk because I live in my house that is paid for. However, there is NO WAY IN SWELL I can speak with anyone at Experian. I have spent hours trying call Experian and speak with someone.

Follow this logic:
A) I no longer have a mortgage.
B) I have more disposable income (to get a loan and buy that Lamborghini, using the house as collateral?)

I would think so, but if I did want to obtain a loan I would now pay a higher interest rate to a lender because my rating is no longer “exceptional”. This is not my fault. This is 100% Experian’s fault that I would pay a higher interest rate!

Here’s another scenario: What if I paid this home off to bank the proceeds in order to move and buy another primary residence? My APR would be higher! Just look at the verbiage in the screenshot. It literally states “You are now viewed as more of a credit risk to creditors”

Here is where Experian falls short as a credit reporting agency:
Experian does not consider a person’s income
Experian does not consider a person’s assets
Experian does not consider a mortgage payoff as a good thing
Experian does not decipher credit card usage data properly
Experian does not answer to the consumer
Does anyone have advice? Better yet in the words of Experian "What Now?"

It's not Experian, it's FICO. FICO penalizes us for (a) not having any open loans and (b) not having any revolving balances.
Recently, a group of FICO insiders appeared in this forum for questions and answers, admitted that these penalties exist, and gave us their explanations for them, which I do not find very convincing.
For example :
"The data shows that going from low installment loan utilization to no installment loan balances reported (and thus 0% installment loan utilization) is slightly more indicative of future risk."
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score-Experts-Ask-us-anything/m-p/6137485#M176981

As to your specific questions:

~~Experian~~ [FICO] does not consider a person’s income
True
~~Experian~~ [FICO] does not consider a person’s assets
True
~~Experian~~ [FICO] does not consider a mortgage payoff as a good thing
True
~~Experian~~ [FICO] does not decipher credit card usage data properly
Agreed
~~Experian~~ [FICO] does not answer to the consumer
True. They work for lending institutions.
Does anyone have advice? Better yet in the words of Experian "What Now?"
Yes. You can maximize your scores by doing the following, which are of no economic consequence to you but will vastly improve your scores:
(a) Take out a small share secured loan with a credit union like NFCU or Penfed and pay it down immediately to 9% of the original loan amount; that will cover you on the installment loan penalty.
(b) Let one bank card report a small balance each month before you pay it off; that will cover you on the revolving account penalty [make sure the card you use to report a balance is not a Chase card]

Can you briefly explain why not a Chase card? Thanks.

Re: Experian Defies Logic

Anonymous — Mon, 02 Nov 2020 19:30:31 GMT

Because if you pay it to zero balance it off cycle updates; it’s OK to use you just have to be aware of that.

Re: Experian Defies Logic

Anonymous — Mon, 02 Nov 2020 19:37:56 GMT

@Anonymous wrote:
@Anonymous

FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before

How is this not logical?

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".

@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.

1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.

2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.

3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.

to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.

No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.

Re: Experian Defies Logic

rostrow416 — Mon, 02 Nov 2020 19:47:48 GMT

FICO scores don't account for income. Lenders do. FICO scores will only give a measure of how you have handled credit. Lenders have different criteria to determine the terms of the credit they will extend to you, FICO scores are not the end all be all.

Re: Experian Defies Logic

Anonymous — Mon, 02 Nov 2020 20:09:11 GMT

That’s very true the score is only one part of credit. we’re talking about how to maximize score, not how to maximize credit.

this is the Understanding FICO Scoring subforum; we do have a general credit subforum, too

Re: Experian Defies Logic

Anonymous — Mon, 02 Nov 2020 20:09:58 GMT

Score is only one component of determining creditworthiness.

Re: Experian Defies Logic

Anonymous — Mon, 02 Nov 2020 20:56:18 GMT

@Anonymous wrote:
@Anonymous wrote:
@Anonymous

FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before

How is this not logical?

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".

@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.

1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.

2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.

3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.

to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.

No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.

"No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "

This is not true. On October 14th I had a 830 FICO score from Experian and I had MORE debt. On October 15th I had a 774 FICO (-56 pts.) score with less debt.

@Anonymous: "Score is only one component of determining creditworthiness." --Not exactly true. Some lenders base their APR solely on credit score.

Mr. @Anonymous : You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)

I think that you work for FICO or my FICO, no? You seem to adamant that FICO scores/algorithms are perfect...

-Jim

Re: Experian Defies Logic

Anonymous — Tue, 03 Nov 2020 16:44:02 GMT

@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous

FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before

How is this not logical?

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".

@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.

1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.

2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.

3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.

to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.

No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.

"No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "

This is not true. On October 14th I had a 830 FICO score from Experian and I had MORE debt. On October 15th I had a 774 FICO (-56 pts.) score with less debt.

@Anonymous: "Score is only one component of determining creditworthiness." --Not exactly true. Some lenders base their APR solely on credit score.

Mr. @Anonymous : You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)

I think that you work for FICO or my FICO, no? You seem to adamant that FICO scores/algorithms are perfect...

-Jim

@Anonymous no sir, I do not work for or have any affiliation other than a subscription to MF or FICO. I'm just a regular Joe here trying to figure it out and help people that's all, but thank you for that, I did get a good laugh. 😉

maybe I should've better qualified that statement, let me try again:

"No, a person with more debt per type is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
they want to see revolving and installment activity.

The reason for the difference is you had no installment activity. So therefore you weren't awarded points for having at least one dollar owed and being paid in installment debt. Yes you were higher because you had a almost paid off mortgage.

what lenders base APR solely on score? because before you can even get to that stage, you have to qualify in many other areas. Those first tests, you're dismissing, but they are necessary to come to that point. But that wasn't my point. The scores evaluate the probability of repayment, they do not evaluate all the other factors that you list. Creditworthiness comprises more than scores and even if scores do dictate APR's, that still does not determine creditworthiness alone.

of course I would lend to the friend with a better history, not to the one who had the bad payment history (all other things equal), and your better payment history gives you a better score, I might add.

no I absolutely think the scores are far from perfect, along with the processes to determine them; however I'm not really here to judge. My opinion of whether or not they're good or bad is irrelevant. I'm simply here to understand how they work. I could suggest many improvements and changes, but I'm not the one who designs them. I'm just a consumer, so I just want to understand how they work.

Re: Experian Defies Logic

Anonymous — Mon, 02 Nov 2020 22:07:16 GMT

Let me explain why they want to see revolving and installment activity. Installment shows reliability, revolving shows you can have temptation and not overuse it, but responsibly use it and pay it, imho.

Re: Experian Defies Logic

Anonymous — Mon, 02 Nov 2020 22:15:47 GMT

@Anonymous May I suggest you check out the scoring primer linked at the top of my signature? it's a collection of basic knowledge about how FICO scoring works.

Re: Experian Defies Logic

Anonymous — Tue, 03 Nov 2020 15:46:16 GMT

@Anonymous wrote:
You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)

Not enough information to say. Was the $1000 not paid back yet because it's a brand new loan and a payment wasn't yet required? Maybe the friend that I already loaned to once that paid me back is going through a divorce, has since lost his job and has $0 income. Maybe the friend I have not loaned to before has taken loans from 3 of my other friends and has paid all of them back according to the terms agreed and just got a promotion that increased his income by 30%.

Re: Experian Defies Logic

SouthJamaica — Tue, 03 Nov 2020 16:52:33 GMT

@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous

FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before

How is this not logical?

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".

@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.

1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.

2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.

3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.

to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.

No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.

"No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "

This is not true. On October 14th I had a 830 FICO score from Experian and I had MORE debt. On October 15th I had a 774 FICO (-56 pts.) score with less debt.

@Anonymous: "Score is only one component of determining creditworthiness." --Not exactly true. Some lenders base their APR solely on credit score.

Mr. @Anonymous : You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)

I think that you work for FICO or my FICO, no? You seem to adamant that FICO scores/algorithms are perfect...

-Jim

@Anonymous no sir, I do not work for or have any affiliation other than a subscription to MF or FICO. I'm just a regular Joe here trying to figure it out and help people that's all, but thank you for that, I did get a good laugh. 😉

maybe I should've better qualified that statement, let me try again:

"No, a person with more debt per type is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
they want to see revolving and installment activity.

The reason for the difference is you had no installment activity. So therefore you weren't awarded points for having at least one dollar owed and being paid in installment debt. Yes you were higher because you had a almost paid off mortgage.

what lenders base APR solely on score? because before you can even get to that stage, you have to qualify in many other areas. Those first tests, you're dismissing, but they are necessary to come to that point. But that wasn't my point. The scores evaluate the probability of repayment, they do not evaluate all the other factors that you list. Creditworthiness comprises more than scores and even if scores do dictate APR's, that still does not determine creditworthiness alone.

of course I would lend to the friend with a better history, not to the one who had the bad payment history, and your better payment history gives you a better score, I might add.

no I absolutely think the scores are far from perfect, along with the processes to determine them; however I'm not really here to judge. My opinion of whether or not they're good or bad is irrelevant. I'm simply here to understand how they work. I could suggest many improvements and changes, but I'm not the one who designs them. I'm just a consumer, so I just want to understand how they work.

BM

Since there's a debate raging here over the logic or illogic behind the no-open-loan and no-revolving-balance penalties, and some of us are actually trying to justify those penalties, I just want to weigh in and say that I find them to be completely illogical, and that there is no justification for them (if the professed goal of the scores were the stated goal, namely risk avoidance).

Even the FICO insiders couldn't justify them other than to claim -- without substantiation -- that "the data" shows "slightly less risk" with low balance profiles than with zero balance profiles.

I have heard before all of the justifications being proffered in this thread, and not a single one of them stands up to the slightest scrutiny. Your credit report shows many many years of your credit experience, and no one would look at the presence of current balances to determine that you have an excellent track record in timely repayment.

Even if it were true, which I seriously doubt, that you'd suddenly become "slightly" more risky by paying off all of your debts, that might translate to 5 or 10 points, perhaps, but not to 56 points.

My theory is that there is an ulterior motive for the penalties, and that while the scores are principally about risk, they are also about reward. People who like to be debt free are less likely to be profitable to the lenders who are FICO's actual customers.

Re: Experian Defies Logic

Anonymous — Tue, 03 Nov 2020 17:34:13 GMT

@SouthJamaica wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous

FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before

How is this not logical?

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".

@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.

1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.

2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.

3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.

to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.

No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.

"No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "

This is not true. On October 14th I had a 830 FICO score from Experian and I had MORE debt. On October 15th I had a 774 FICO (-56 pts.) score with less debt.

@Anonymous: "Score is only one component of determining creditworthiness." --Not exactly true. Some lenders base their APR solely on credit score.

Mr. @Anonymous : You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)

I think that you work for FICO or my FICO, no? You seem to adamant that FICO scores/algorithms are perfect...

-Jim

@Anonymous no sir, I do not work for or have any affiliation other than a subscription to MF or FICO. I'm just a regular Joe here trying to figure it out and help people that's all, but thank you for that, I did get a good laugh. 😉

maybe I should've better qualified that statement, let me try again:

"No, a person with more debt per type is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
they want to see revolving and installment activity.

The reason for the difference is you had no installment activity. So therefore you weren't awarded points for having at least one dollar owed and being paid in installment debt. Yes you were higher because you had a almost paid off mortgage.

what lenders base APR solely on score? because before you can even get to that stage, you have to qualify in many other areas. Those first tests, you're dismissing, but they are necessary to come to that point. But that wasn't my point. The scores evaluate the probability of repayment, they do not evaluate all the other factors that you list. Creditworthiness comprises more than scores and even if scores do dictate APR's, that still does not determine creditworthiness alone.

of course I would lend to the friend with a better history, not to the one who had the bad payment history, and your better payment history gives you a better score, I might add.

no I absolutely think the scores are far from perfect, along with the processes to determine them; however I'm not really here to judge. My opinion of whether or not they're good or bad is irrelevant. I'm simply here to understand how they work. I could suggest many improvements and changes, but I'm not the one who designs them. I'm just a consumer, so I just want to understand how they work.

BM
Since there's a debate raging here over the logic or illogic behind the no-open-loan and no-revolving-balance penalties, and some of us are actually trying to justify those penalties, I just want to weigh in and say that I find them to be completely illogical, and that there is no justification for them (if the professed goal of the scores were the stated goal, namely risk avoidance).

Even the FICO insiders couldn't justify them other than to claim -- without substantiation -- that "the data" shows "slightly less risk" with low balance profiles than with zero balance profiles.

I have heard before all of the justifications being proffered in this thread, and not a single one of them stands up to the slightest scrutiny. Your credit report shows many many years of your credit experience, and no one would look at the presence of current balances to determine that you have an excellent track record in timely repayment.

Even if it were true, which I seriously doubt, that you'd suddenly become "slightly" more risky by paying off all of your debts, that might translate to 5 or 10 points, perhaps, but not to 56 points.

My theory is that there is an ulterior motive for the penalties, and that while the scores are principally about risk, they are also about reward. People who like to be debt free are less likely to be profitable to the lenders who are FICO's actual customers.

@SouthJamaica Respectfully, how else could it be justified by anything but data and statistics? If you were fico and data showed higher risk with $0 balance, you would defy factual data and reward for it? That would hurt faith in your algorithm and make it less predictable and reliable.

There are many statistics that don't seem to make sense, but they are factual. The reasoning why the statistic is what it is, is opinion of course.

One note, Payment History is not at issue here. That's where many confuse the score change. It had nothing to do with payment history. Full points are awarded for that category absent a past derogatory.

The score change discussed here derives from the Amounts Owed category, so past balances and utilization are irrelevant as it is a point in time algorithm. As stated, that'll change with trended data. Payment History is irrelevant too, as that's considered separately in its own category.

Payment History is for historical payment activity; Amounts Owed is for current management of debt. History rewards you for history (past mortgage loans); Amount Owed rewards you for current management (open mortgage loan). Why is it illogical to consider past and present separately?

So if you don't have current revolving and loan balances and utilization, you aren't awarded points for current (meaning now, not previously) revolving and loan credit management.

Past is a great predictor, but its not absolute, as things change. Are they wrong for assessing one's present management separately?

jmho.

Re: Experian Defies Logic

Anonymous — Tue, 03 Nov 2020 17:47:24 GMT

Edited:

Compare 2 individuals, one owes $20,000 in revolving debt and has a $2000/mo mortgage. The other owes $20,000 in revolving debt as well, but has no monthly mortgage obligation. Both have a past paid mortgage and perfect payment history. Which would have a better chance of getting a larger loan?

No, you’re not allowed to consider income or assets. Assume ages and new credit are the same.

Id argue the one without a mortgage could have access to a lager loan due to lower obligations and is therefore a higher risk to overextend themself, as the one with a mortgage, lenders would likely be more conservative with, based on CR info only.

Re: Experian Defies Logic

SouthJamaica — Tue, 03 Nov 2020 18:29:47 GMT

@Anonymous wrote:
@SouthJamaica wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous

FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before

How is this not logical?

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".

@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.

1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.

2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.

3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.

to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.

No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.

"No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "

This is not true. On October 14th I had a 830 FICO score from Experian and I had MORE debt. On October 15th I had a 774 FICO (-56 pts.) score with less debt.

@Anonymous: "Score is only one component of determining creditworthiness." --Not exactly true. Some lenders base their APR solely on credit score.

Mr. @Anonymous : You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)

I think that you work for FICO or my FICO, no? You seem to adamant that FICO scores/algorithms are perfect...

-Jim

@Anonymous no sir, I do not work for or have any affiliation other than a subscription to MF or FICO. I'm just a regular Joe here trying to figure it out and help people that's all, but thank you for that, I did get a good laugh. 😉

maybe I should've better qualified that statement, let me try again:

"No, a person with more debt per type is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
they want to see revolving and installment activity.

The reason for the difference is you had no installment activity. So therefore you weren't awarded points for having at least one dollar owed and being paid in installment debt. Yes you were higher because you had a almost paid off mortgage.

what lenders base APR solely on score? because before you can even get to that stage, you have to qualify in many other areas. Those first tests, you're dismissing, but they are necessary to come to that point. But that wasn't my point. The scores evaluate the probability of repayment, they do not evaluate all the other factors that you list. Creditworthiness comprises more than scores and even if scores do dictate APR's, that still does not determine creditworthiness alone.

of course I would lend to the friend with a better history, not to the one who had the bad payment history, and your better payment history gives you a better score, I might add.

no I absolutely think the scores are far from perfect, along with the processes to determine them; however I'm not really here to judge. My opinion of whether or not they're good or bad is irrelevant. I'm simply here to understand how they work. I could suggest many improvements and changes, but I'm not the one who designs them. I'm just a consumer, so I just want to understand how they work.

BM
Since there's a debate raging here over the logic or illogic behind the no-open-loan and no-revolving-balance penalties, and some of us are actually trying to justify those penalties, I just want to weigh in and say that I find them to be completely illogical, and that there is no justification for them (if the professed goal of the scores were the stated goal, namely risk avoidance).

Even the FICO insiders couldn't justify them other than to claim -- without substantiation -- that "the data" shows "slightly less risk" with low balance profiles than with zero balance profiles.

I have heard before all of the justifications being proffered in this thread, and not a single one of them stands up to the slightest scrutiny. Your credit report shows many many years of your credit experience, and no one would look at the presence of current balances to determine that you have an excellent track record in timely repayment.

Even if it were true, which I seriously doubt, that you'd suddenly become "slightly" more risky by paying off all of your debts, that might translate to 5 or 10 points, perhaps, but not to 56 points.

My theory is that there is an ulterior motive for the penalties, and that while the scores are principally about risk, they are also about reward. People who like to be debt free are less likely to be profitable to the lenders who are FICO's actual customers.

@SouthJamaica Respectfully, how else could it be justified by anything but data and statistics? If you were fico and data showed higher risk with $0 balance, you would defy factual data and reward for it? That would hurt faith in your algorithm and make it less predictable and reliable.

There are many statistics that don't seem to make sense, but they are factual. The reasoning why the statistic is what it is, is opinion of course.

One note, Payment History is not at issue here. That's where many confuse the score change. It had nothing to do with payment history. Full points are awarded for that category absent a past derogatory.

The score change discussed here derives from the Amounts Owed category, so past balances and utilization are irrelevant as it is a point in time algorithm. As stated, that'll change with trended data. Payment History is irrelevant too, as that's considered separately in its own category.

Payment History is for historical payment activity; Amounts Owed is for current management of debt. History rewards you for history (past mortgage loans); Amount Owed rewards you for current management (open mortgage loan). Why is it illogical to consider past and present separately?

So if you don't have current revolving and loan balances and utilization, you aren't awarded points for current (meaning now, not previously) revolving and loan credit management.

Past is a great predictor, but its not absolute, as things change. Are they wrong for assessing one's present management separately?

jmho.

They are certainly wrong for treating a person who has paid all of his/her debts less favorably than someone who has not paid all of his/her debts. Yes they are wrong. Dead wrong.

I am sure you know that someone who has had an extensive credit history and has paid off everything is at least as creditworthy as someone who still owes money.

In your haste to defend this anomaly in the algorithm you are attributing some kind of reasoning to it that makes no sense and even the FICO insiders (except for one who gave an absurd analogy) did not proffer. To say that failing to pay off one's debt shows "management" skill superior to paying off one's debt is not rational. Sorry.

Nor do you offer any explanation as to how the alleged "slight" difference proved by the "data" could translate to the 50-60 points that most people get hammered.

Re: Experian Defies Logic

Anonymous — Tue, 03 Nov 2020 20:27:11 GMT

@SouthJamaica wrote:
@Anonymous wrote:
@SouthJamaica wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous

FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:

1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before

How is this not logical?

"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".

@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.

1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.

2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.

3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.

to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.

No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.

"No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "

This is not true. On October 14th I had a 830 FICO score from Experian and I had MORE debt. On October 15th I had a 774 FICO (-56 pts.) score with less debt.

@Anonymous: "Score is only one component of determining creditworthiness." --Not exactly true. Some lenders base their APR solely on credit score.

Mr. @Anonymous : You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)

I think that you work for FICO or my FICO, no? You seem to adamant that FICO scores/algorithms are perfect...

-Jim

@Anonymous no sir, I do not work for or have any affiliation other than a subscription to MF or FICO. I'm just a regular Joe here trying to figure it out and help people that's all, but thank you for that, I did get a good laugh. 😉

maybe I should've better qualified that statement, let me try again:

"No, a person with more debt per type is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
they want to see revolving and installment activity.

The reason for the difference is you had no installment activity. So therefore you weren't awarded points for having at least one dollar owed and being paid in installment debt. Yes you were higher because you had a almost paid off mortgage.

what lenders base APR solely on score? because before you can even get to that stage, you have to qualify in many other areas. Those first tests, you're dismissing, but they are necessary to come to that point. But that wasn't my point. The scores evaluate the probability of repayment, they do not evaluate all the other factors that you list. Creditworthiness comprises more than scores and even if scores do dictate APR's, that still does not determine creditworthiness alone.

of course I would lend to the friend with a better history, not to the one who had the bad payment history, and your better payment history gives you a better score, I might add.

no I absolutely think the scores are far from perfect, along with the processes to determine them; however I'm not really here to judge. My opinion of whether or not they're good or bad is irrelevant. I'm simply here to understand how they work. I could suggest many improvements and changes, but I'm not the one who designs them. I'm just a consumer, so I just want to understand how they work.

BM
Since there's a debate raging here over the logic or illogic behind the no-open-loan and no-revolving-balance penalties, and some of us are actually trying to justify those penalties, I just want to weigh in and say that I find them to be completely illogical, and that there is no justification for them (if the professed goal of the scores were the stated goal, namely risk avoidance).

Even the FICO insiders couldn't justify them other than to claim -- without substantiation -- that "the data" shows "slightly less risk" with low balance profiles than with zero balance profiles.

I have heard before all of the justifications being proffered in this thread, and not a single one of them stands up to the slightest scrutiny. Your credit report shows many many years of your credit experience, and no one would look at the presence of current balances to determine that you have an excellent track record in timely repayment.

Even if it were true, which I seriously doubt, that you'd suddenly become "slightly" more risky by paying off all of your debts, that might translate to 5 or 10 points, perhaps, but not to 56 points.

My theory is that there is an ulterior motive for the penalties, and that while the scores are principally about risk, they are also about reward. People who like to be debt free are less likely to be profitable to the lenders who are FICO's actual customers.

@SouthJamaica Respectfully, how else could it be justified by anything but data and statistics? If you were fico and data showed higher risk with $0 balance, you would defy factual data and reward for it? That would hurt faith in your algorithm and make it less predictable and reliable.

There are many statistics that don't seem to make sense, but they are factual. The reasoning why the statistic is what it is, is opinion of course.

One note, Payment History is not at issue here. That's where many confuse the score change. It had nothing to do with payment history. Full points are awarded for that category absent a past derogatory.

The score change discussed here derives from the Amounts Owed category, so past balances and utilization are irrelevant as it is a point in time algorithm. As stated, that'll change with trended data. Payment History is irrelevant too, as that's considered separately in its own category.

Payment History is for historical payment activity; Amounts Owed is for current management of debt. History rewards you for history (past mortgage loans); Amount Owed rewards you for current management (open mortgage loan). Why is it illogical to consider past and present separately?

So if you don't have current revolving and loan balances and utilization, you aren't awarded points for current (meaning now, not previously) revolving and loan credit management.

Past is a great predictor, but its not absolute, as things change. Are they wrong for assessing one's present management separately?

jmho.
They are certainly wrong for treating a person who has paid all of his/her debts less favorably than someone who has not paid all of his/her debts. Yes they are wrong. Dead wrong.

I am sure you know that someone who has had an extensive credit history and has paid off everything is at least as creditworthy as someone who still owes money.

In your haste to defend this anomaly in the algorithm you are attributing some kind of reasoning to it that makes no sense and even the FICO insiders (except for one who gave an absurd analogy) did not proffer. To say that failing to pay off one's debt shows "management" skill superior to paying off one's debt is not rational. Sorry.

Nor do you offer any explanation as to how the alleged "slight" difference proved by the "data" could translate to the 50-60 points that most people get hammered.

I'm not in a hurry to defend it only to understand and help others understand it. I could be wrong about things and when I'm wrong, I admit it and move on.

nevertheless they're not treating someone who has paid all their debts worse than someone who has not.

If you've paid all your debts timely, you're receiving all possible points from the payment history category; someone who has not is not. It seems like you feel a credit score should only be based on payment history? Unfortunately they must consider present circumstances as well as past circumstances as well as other factors such as length of history, new credit, and mix.

i'm not saying I agree with the points system's structure, I'm simply explaining how and why I think it works the way it does.

you know as well as I do that those points come from amounts owed category because you have played reindeer games and saw the points come as the utilization goes down. You know utilization doesn't take into account past history, it's a point in time category. So why do you act like it has anything to do with payment history or the past? Full points are given for that.

you're also laboring under the fallacy that credit score is an evaluation of creditworthiness when it's only one part of creditworthiness assessment.

my reasoning is just that an attempt to explain the facts based on my opinion. The fact of the points coming from amounts owed is a fact.

I never said failing to pay off ones debts is superior. What I said is it's a point in time algorithm and if you have absolutely zero debt, it cannot evaluate your management of it.

your advice to allow a small balance to report and pay it off without paying any interest is The perfect example of how to show activity.

you are right, the algorithm is not perfect and never will be. Trended data is one of the things that they are introducing to remedy the fact that utilization right now only looks at a point in time instead of back over the past as you desire.

in your haste you misattributed language to the experts stating they said it was a penalty when they never said such.

yes I have given a reason for the difference; you are awarded points more and more as you pay your utilization down to the ideal utilization interval. Once you pay it off, there is no more utilization to evaluate under current models.

The utilization doesn't know you had a past mortgage and regularly paid it and if it was a month ago or 20 years ago. That's the payment history categories job, not that of amounts owed because you no longer owe it!