topic Are you saying that if you were an insurance company, and... in Understanding FICO® Scoring

FICO logic - can someone please explain to me

Anonymous — Sun, 08 Apr 2007 20:00:06 GMT

I just received an email from FICO Scorewatch informing me that my credit score just dropped 100 POINTS because my Visa balance increased by $629 in one month. While my debt on that card is closer to 50% of my credit limit than to 40%, a drop of 100 points seems excessive in the extreme, given the circumstances. Just about a month ago I reduced two other accounts by $1300, bringing my percentage of debt on those accounts to 36% of available balance. When all my open accounts and my Visa are taken into account, I am using 42% of my available credit.

I have never been late with a payment, never missed a payment. Why would this relatively small increase have such a violent effect on my credit score? Yesterday I was in the top 30% of consumers, today I'm in the bottom 25%. This makes no sense to me. Can someone explain the logic behind such a huge hit in light of my overall situation?

amendment to percentage of debt to credit

Anonymous — Sun, 08 Apr 2007 23:27:10 GMT

In my message above I stated that my total percentage of debt to credit is 42%, but I made a mistake -- it's 36%. I was told by a FICO customer service rep that the threshold is 40%, but it looks from some of the comments on this board that it's more like 30%. Either way, I can't see where this ratio puts me in the bottom 30% of consumer credit scores.

I hope someone can shed some light on this for me, because at this point it seems as though no matter what I do, I can't win.

Need more info

Anonymous — Mon, 09 Apr 2007 00:29:01 GMT

minonda wrote:
I just received an email from FICO Scorewatch informing me that my credit score just dropped 100 POINTS because my Visa balance increased by $629 in one month. While my debt on that card is closer to 50% of my credit limit than to 40%, a drop of 100 points seems excessive in the extreme, given the circumstances. Just about a month ago I reduced two other accounts by $1300, bringing my percentage of debt on those accounts to 36% of available balance. When all my open accounts and my Visa are taken into account, I am using 42% of my available credit.

I have never been late with a payment, never missed a payment. Why would this relatively small increase have such a violent effect on my credit score? Yesterday I was in the top 30% of consumers, today I'm in the bottom 25%. This makes no sense to me. Can someone explain the logic behind such a huge hit in light of my overall situation?

Okay just because this change was the one reported with your Scorewatch it may not be the only factor in the sore decrease. Do you remember all of the accounts that were reporting on your file beforehand. Pull the full report and compare it to the previous one. Has an old account fallen off your report? Even if it was an old colelction it can have an effect on the score. I've heard of something similar happening when a friend had an old closed account drop from his report, significantly reaging his credit history.

The increased utilization can definitely ding you. Are any cards above 90% usage which would read as maxed out? Do you have balances on the more than half of your cards. Sometmes the change combined with other factors taken into account by the score can drop you?

We would really need more info, comparing the previous report to the new one to give a straight answer. In the past three months my score has increased by 60 points by taking utilization from about 40 percent to below thirty waiting for an additional increase as I hit 10% around the 20th of the month. I also find that the score has a tendency to hit harder on negatives than reward on positives. Over 50% on a card with multiple balances also combine to double whammy you.

HTH

Message Edited by Brammy on 04-08-2007 08:29 PM

Nothing that could explain such a drop, that I know of

Anonymous — Mon, 09 Apr 2007 01:03:27 GMT

Hi Brammy, thanks for responding. To answer your questions, first, I don't have a current report to check, so I don't know if something has fallen off that could have affected my score to this extent. Why would that make such a difference?

Here is some background:

Just 4 weeks ago I got a notification that my score was 762. I don't have any accounts where my balance is greater than 50%, including my Visa. My Visa is the one with the highest utilization -- 47%. The others - one at 28%, another recenlty paid off, a third at 20%. It's possible that they haven't caught up with the payments I made in February that reduced my debt by $1400, and maybe that, combined with the increase of debt on my Visa card lowered my score. But 100 points sounds outrageous to me.

A few weeks ago I signed up with something called LifeLock, a service that puts fraud alerts on all your accounts (which I had already when I discovered that a piece of paper with my SS# had been left exposed for anyone to see in an area where a lot of people pass through) and they requested credit reports from all three bureaus. Could this move have possibly caused this huge drop?

I have no past due accounts, no missed payments, and I haven't maxed anything out, nothing. That's why this seems so extreme to me. If you have any idea what's up, please let me know. I hope I've given you enough information.

Okay you have scorewatch. I would reccommend pulling a f...

Anonymous — Mon, 09 Apr 2007 01:35:20 GMT

Okay you have scorewatch. I would reccommend pulling a full report as that kid of drop can can serious adverse effects on your open accounts. Credit limit lowering, interest rate increase, card closings, just to name a few. I think the 10.95 would be well invested. The only time I ever had a major score drop was when a collection was filed against my report, which I luckily got removed, and that was 50 points. You can compared the new report to the one that your currently have as long as its still viewable.

It could be a case of ID theft or,as I speculated before, maybe an old closed account fell off your report.

Now I'm scared

Anonymous — Mon, 09 Apr 2007 01:59:13 GMT

Ok, I will have to check my actual report. But, I also until a few days ago had the FICO identity alert service so I would have thought that any fraudulent activity would have been reported, plus, I have had fraud alerts on my accounts for the past month, so I don't know how anything could have happened without my knowing.

So you're saying that my current credit is in danger due to this drop, even though I don't know the reason for it?

Sorry

Anonymous — Mon, 09 Apr 2007 02:16:54 GMT

minonda wrote:
Ok, I will have to check my actual report. But, I also until a few days ago had the FICO identity alert service so I would have thought that any fraudulent activity would have been reported, plus, I have had fraud alerts on my accounts for the past month, so I don't know how anything could have happened without my knowing.

So you're saying that my current credit is in danger due to this drop, even though I don't know the reason for it?

Unfortunately yes your current accounts can be affected by a large decrease infyour fice score. Lenders generally check periodically or have triggers when accounts reah acertain score. This aids them in deciding who get CLIs and who pays a higher interest rate based on perceived risk. If you read your terms and conditions for your credit agreement you may find a phrase when relating to the default APR as to the reason why your rates may be raised. I try to stick with cards that don't do universal default, in other words as long as my payments are received by them on time, I'm safe. Both my WaMu and C1 (this is the only thing I've found good about C1) have a no UD clause. Although WaMu goes on to say that they will do periodic reviews and based on those reviewss they may decide on how much to raise the interest rate.

Most will state they can raise your rates based on any change in your credit performance and this is most often done by score monitoring. It would be too much work to pull a hard copy everytime. Something as large as a 100 point drop will bring your account up for review and hopefully they will eyeball it and find no new derogs and see that something old just fell off and spare you the guillotine.

Message Edited by Brammy on 04-08-2007 10:16 PM

Took your advice and got a current report from Equifax - cannot believe what is happening

Anonymous — Mon, 09 Apr 2007 02:33:36 GMT

Even though I recently paid $100 for the LifeLock service, I was so scared by this that I decided to pay $10.95 to FICO for my current Equifax report, and this is what I found. They DO have the most recent payment information on my accounts although not the most current Visa balance, BUT, a past due Columbia House DVD bill in the amount of $46 (something I did not even realize I owed) is showing up as a "derogatory collection." I paid this bill last August when I first got the notice. Then they sent me another notice in January of this year. I sent them a copy of the canceled check and said that I paid it already. Now it's showing up as an unpaid collection.

Here is what it says in the credit report explanation of why having a relatively new derogatory report is bad:

"For consumers with derogatory public records or collection agency references on their credit bureau reports, a strong predictor of future repayment risk is the recency of the item. Federal law requires that most derogatory public records and collection items remain on your credit bureau report for no more than seven years (there are items which could remain longer). Note that satisfying or paying off a collection item or derogatory public record does not make it disappear from your credit report. Research shows that the fact that it occurred is still predictive of future repayment risk, and thus it will still be considered by the score."

This is one huge joke. With all the accounts I've had where I've owed significantly more money than this and paid on time, FICO is saying that because I didn't pay somebody $46 that I'm a credit risk? I would like to know who is formulating the standards that they use to arrive at our scores. Apart from the fact that I DID pay the bill, why would this be reason enough to lower my score by 100 points?

Also, here's another funny joke:

"The proportion of balances to credit limits on your revolving accounts is too highThe proportion of balances to credit limits (high credit) on your revolving accounts is 38%. The average proportion of balances to credit limits on revolving accounts carried by U.S. consumers is around 40%. Click here to review your Accounts Summary."

Ok, if my proportion is 38%, and the average is 40%, what, exactly, is the problem here? Something is very wrong, and I don't think it has anything to do with credit card fraud. Looks like I'm going to be on the phone with Equifax tomorrow.

Glad to see its no fraud

Anonymous — Mon, 09 Apr 2007 02:48:08 GMT

minonda wrote:
Even though I recently paid $100 for the LifeLock service, I was so scared by this that I decided to pay $10.95 to FICO for my current Equifax report, and this is what I found. They DO have the most recent payment information on my accounts although not the most current Visa balance, BUT, a past due Columbia House DVD bill in the amount of $46 (something I did not even realize I owed) is showing up as a "derogatory collection." I paid this bill last August when I first got the notice. Then they sent me another notice in January of this year. I sent them a copy of the canceled check and said that I paid it already. Now it's showing up as an unpaid collection.

Here is what it says in the credit report explanation of why having a relatively new derogatory report is bad:

"For consumers with derogatory public records or collection agency references on their credit bureau reports, a strong predictor of future repayment risk is the recency of the item. Federal law requires that most derogatory public records and collection items remain on your credit bureau report for no more than seven years (there are items which could remain longer). Note that satisfying or paying off a collection item or derogatory public record does not make it disappear from your credit report. Research shows that the fact that it occurred is still predictive of future repayment risk, and thus it will still be considered by the score."
This is one huge joke. With all the accounts I've had where I've owed significantly more money than this and paid on time, FICO is saying that because I didn't pay somebody $46 that I'm a credit risk? I would like to know who is formulating the standards that they use to arrive at our scores. Apart from the fact that I DID pay the bill, why would this be reason enough to lower my score by 100 points?

Also, here's another funny joke:

"The proportion of balances to credit limits on your revolving accounts is too highThe proportion of balances to credit limits (high credit) on your revolving accounts is 38%. The average proportion of balances to credit limits on revolving accounts carried by U.S. consumers is around 40%. Click here to review your Accounts Summary."

Ok, if my proportion is 38%, and the average is 40%, what, exactly, is the problem here? Something is very wrong, and I don't think it has anything to do with credit card fraud. Looks like I'm going to be on the phone with Equifax tomorrow.

Most definitely glad to see no fraud involved but a collection is a collection. I would contact the collector and Columbia house with an intent to sue if it is not removed. The impact of a new collection varies depending on your previous score.

That being said. I know the balances too high thing will throw you off, however, the recommended revolving balance is 10- 30% the average thing is all account types, good, bad and ugly. I still get that message at 24%. Trust me if you get it down under 30 % and have that collection removed completely, you may recover your score. I just read an article on msn money that a simple recent 30 day late notice can drop your score 100 points, goodness only knows what a colelction can do no matter the amount.

Get the collection off. I had a bogus one that caused my card to rate jack me to the default and even after I had it removed they refused to lower it. That's when I got tired of subprime treatment. Act BEFORE it messes up anything else.

On the balances too high thing. I no longer get that since my balances are now reporting what I get now After paying off my car and having a student loan about to come out of deferment is that the balance on installment loans is too high. Never got that as long as the car loan was reporting open because it looked at both. You would think paying off a loan would be a GOOD thing... go figure

Message Edited by Brammy on 04-08-2007 10:45 PM

Message Edited by Brammy on 04-08-2007 10:48 PM

Thanks for your help, and just one more question.

Anonymous — Mon, 09 Apr 2007 03:03:41 GMT

Brammy, if I can prove that I paid this bill in August 2006, will they take it off my credit report? Also, why, if I had a score of 762, would an amount of $46 have that profound an impact on my score? If I proved that I was trustworthy enough to pay many times greater amounts, why would $46 be so important? I didn't even know I owed them that money until I received a notice from them last August (I don't remember when I stopped being a member of the Columbia House DVD club, but it had to be years ago. I never got notices or reminders). Also, I paid the bill, so it should never have ended up in collections.

Years ago I had paid off a $1000 account, and somehow forgot to pay $5 of it. This was an account with MBNA. They never notified me that I still owed them $5, and then they posted it on my credit report as over 90 days past due. I got it removed on the grounds that it was ridiculous to penalize me for $5 when I had paid them their $1000. I guess when it comes to credit scores there is nothing too ridiculous or absurd. It's almost as though they're trying to make it impossible to have a good score.

Thanks for your help and advice.

That's just the point

Anonymous — Mon, 09 Apr 2007 03:16:03 GMT

minonda wrote:
Brammy, if I can prove that I paid this bill in August 2006, will they take it off my credit report? Also, why, if I had a score of 762, would an amount of $46 have that profound an impact on my score? If I proved that I was trustworthy enough to pay many times greater amounts, why would $46 be so important? I didn't even know I owed them that money until I received a notice from them last August (I don't remember when I stopped being a member of the Columbia House DVD club, but it had to be years ago. I never got notices or reminders). Also, I paid the bill, so it should never have ended up in collections.

Years ago I had paid off a $1000 account, and somehow forgot to pay $5 of it. This was an account with MBNA. They never notified me that I still owed them $5, and then they posted it on my credit report as over 90 days past due. I got it removed on the grounds that it was ridiculous to penalize me for $5 when I had paid them their $1000. I guess when it comes to credit scores there is nothing too ridiculous or absurd. It's almost as though they're trying to make it impossible to have a good score.

Thanks for your help and advice.

You just made thep point, if you have been mostly pristine in your payment history and suddenly a collection shows up, it will hurt your score more. Why else would someone who is basically on time with their payment stop paying unless they were in financial trouble? The FICO score is used to predict just that, who's in financial trouble and may be at risk on non repayment. For me, because my scores were so low at the time, I only took a fifty point hit for you, the penalty is greater.

Contact the original creditor and let them know have proof of payment, forward it to them certified mail. Let them know if it is not removed within 30 days (you have to give them that long to respond) you will contact the FTC. If its not removed, contact the FTC with a copy of your payment. Do it as soon as possible and make sure you certify with return receipt requested.

I'm not sure if its a case of trying to make it impossible to have a good credit score but throwing every possible obstacle in your way to prevent you from obtaining additional credit and basically make your life a nightmare until they get paid.

Message Edited by Brammy on 04-08-2007 11:16 PM

I'm sorry, but that makes no sense at all

Anonymous — Mon, 09 Apr 2007 03:43:33 GMT

I didn't know I owed them $46 -- that's why the debt went upaid for so long, not because I was in financial trouble and couldn't pay it, jsut like the $5 I neglected to pay MBNA in 2000, that they decided was worth reporting to the credit bureau. Columbia reported it because their collection agency didn't record the fact that I had paid it. If I could pay over $3000 on my bills in February of 2007, why would I have trouble coming up with $46? My credit score has been over 700 for years -- how is that an indicator of financial troubles?

If Columbia House's intention is to make my life difficult for $46 and FICO supports them in this, then this credit score game has truly reached absurd heights. Especially since I paid the money once they brought it to my attention that I owed them. This is the most ridiculous thing I ever heard.

"didn't know I owed them $46 -- that's why the debt...

Anonymous — Mon, 09 Apr 2007 04:19:39 GMT

"didn't know I owed them $46 -- that's why the debt went upaid for so long, not because I was in financial trouble and couldn't pay it, jsut like the $5 I neglected to pay MBNA in 2000, that they decided was worth reporting to the credit bureau. Columbia reported it because their collection agency didn't record the fact that I had paid it. If I could pay over $3000 on my bills in February of 2007, why would I have trouble coming up with $46? My credit score has been over 700 for years -- how is that an indicator of financial troubles?"
I feel for you. As a parent of a medically fragile child, I have had to deal with the influx of 100s of medical bills over the years. Many are very small. If just one slips through the cracks, it goes on my credit. The fact that is was a $20 copay to a radiologist that didn't have my contact info doesn't matter. The fact that I paid all of the other medical bills perfectly as they came in doesn't matter. I have learned my lesson. I spend hours on the phone tracking each one down to make sure I don't miss anything. A $20 collection hurts your credit just as much as a $2000 collection. It isn't fair. But, that's just the way it is.

Message Edited by madriley on 04-08-2007 09:19 PM

It shouldn't be that way

Anonymous — Mon, 09 Apr 2007 04:32:34 GMT

Logic should enter into the process at some point, since a person's financial capability is at stake. To say that an overlooked debt of $20 amounts to the same thing as a $2000 default is absurd. In my experience with MBNA a few years ago, they removed the negative report because even "they", whoever they are, recognized that if I paid the original $1000 debt off within months of incurring it, the oversight of $5 could hardly be considered a default.

For something as important as our ability to obtain goods and services, we should not have draconian rules that are applied across the board regardless of circumstances. To me this is the same as giving the death penalty to someone who steals food because he has no money to buy it. Most of us would raise a hue and cry if someone were to receive such a harsh penalty for a relatively petty offense, yet it's okay for someone who clearly is paying their bills to be tarred by that broad brush because of some alegbraic calculation that decrees that if this condition is present, then another must be also?

There must be a way the mathematicians can come up with a formula that allows an obvious indicator like a credit score to mitigate negative information. Otherwise this tool is just like some robot ranging around the room destroying things willy nilly. I must be upset because I have never used the expression "willy nilly" before and I never thought I would.

If the SATs were rigged like this, it would have been fixed long ago.

Brammy's right... the key to the FICO score is prediction...

Nuggy — Mon, 09 Apr 2007 04:34:50 GMT

@Anonymous wrote:
I didn't know I owed them $46 -- that's why the debt went upaid for so long, not because I was in financial trouble and couldn't pay it, jsut like the $5 I neglected to pay MBNA in 2000, that they decided was worth reporting to the credit bureau. Columbia reported it because their collection agency didn't record the fact that I had paid it. If I could pay over $3000 on my bills in February of 2007, why would I have trouble coming up with $46? My credit score has been over 700 for years -- how is that an indicator of financial troubles?
If Columbia House's intention is to make my life difficult for $46 and FICO supports them in this, then this credit score game has truly reached absurd heights. Especially since I paid the money once they brought it to my attention that I owed them. This is the most ridiculous thing I ever heard.

Brammy's right... the key to the FICO score is prediction of the future. If you have an excellent history, the score assumes that you don't forget, make mistakes, etc etc because you've never done so. Once it sees the collection, like Brammy said, that's a red flag that you might be starting to have issues.

The FICO score doesn't care about they why's of a negative, because they can't possibly KNOW why. This is purely a numbers and percentages game... your score drop says that of the people in the group you were in, a single negative is a relatively large risk factor of continued accumulating negatives. In Brammy's case, the numbers already say he hasn't been perfect, so the new negative is less of a surprise.

If you wanted FICO scores to take into account the why's of particular situations, there would be hundreds of thousands of people in a call center, contacting every single person in the country whenever there was any change in their report asking them to explain the change. It'd be overwhelming. There's no choice but to predict you as a higher risk, because the statistics say that new collections for people in your good credit group have a tendency to indicate continued problems.

Consider getting a speeding ticket. You could never have exceeded 55 in your life, but one day you get a ticket because your speedometer got stuck. Your insurance company doesn't care why you were speeding; they'll still raise your rates because of the ticket, even though it wasn't your fault, because that's where overall tendencies lie.

I actually considered being an actuary for a career... these are the people that sit there and do nothing but research the numbers to come up with predictions and tendencies based on what essentially is basic numerical data. That's the hard fact of living in a society of 300 million people. It's impossible to take everyone's individual circumstances into consideration - you have to make generalized predictions.

No, sorry, don't agree

Anonymous — Mon, 09 Apr 2007 04:51:05 GMT

I don't think the analogy of speeding with default on credit is a good one. For one thing, the credit score depends on history. Therefore, past behavior is a factor in the score. With driving, past history can never predict what will happen the next time one drives, because there are too many uncontrollable variables.

There must be a way to devise a formula that says, "if x >y, and z <a .. then bla bla bla. In other words, if a person with a score of 600 has a negative for a collection item of $3000, it would count for more negative points than a person whose score is 700 with a collection item of $200. I can't see why a formula can't be devised to take these factors into account. They're aleady in the form of numbers, so they can be compared. No need for a call center.

Sorry, but if we're to be judged and our capabilities are to be determined by these numbers, then they must be arrived at by the most specific and sophisticated formulas possible. I don't buy the idea that we should just accept this ridiculous across-the-board way of arriving at our evaluations.

Are you saying that if you were an insurance company, and...

Nuggy — Mon, 09 Apr 2007 05:19:49 GMT

@Anonymous wrote:
I don't think the analogy of speeding with default on credit is a good one. For one thing, the credit score depends on history. Therefore, past behavior is a factor in the score. With driving, past history can never predict what will happen the next time one drives, because there are too many uncontrollable variables.
There must be a way to devise a formula that says, "if x >y, and z
Sorry, but if we're to be judged and our capabilities are to be determined by these numbers, then they must be arrived at by the most specific and sophisticated formulas possible. I don't buy the idea that we should just accept this ridiculous across-the-board way of arriving at our evaluations.

Are you saying that if you were an insurance company, and you had a 17 year old with 5 accidents on his record, you would charge him the same as a 55 year old with a spotless record spanning 40 years? If what you say about past driving history not being predictive of the future, then the insurance and actuarial industries are a total sham. But... that's a whole other discussion.

I don't disagree with your opinion that these numbers should be derived as accurately as possible. But no matter what formula you throw at it, it's still a formula, and there are going to be people who, when you take the time to consider the subjectivity of their situation, certainly don't fit the formula.

For all we know, they've already done the research that shows, however counterintuitive that it may sound, that it makes no difference (or a small enough difference to be statistically insignificant) how much the amount of the collection was; simply the fact that the collection exists might be a much more reliable indicator of future probability. It might not make total sense, but they don't set rates based on what seems to make sense in our head... they set them based on what the numbers of millions of previous similar situations say is likely to happen.

What you suggest is certainly a desirable concept, but for all we know they've already taken what you suggest into consideration. For all we know they haven't, too... it's impossible to say.

Message Edited by Nuggy on 04-08-2007 10:19 PM

driving history vs credit history

Anonymous — Mon, 09 Apr 2007 10:24:29 GMT

This discussion has now reached the circular phase where I am maintaining one point of view while others are asserting its opposite. Nevertheless, I would like to comment on your question about whether I think a young inexperienced driver with a poor driving history should be charged the same insurance rates as an older more experienced driver with a perfect driving record.

I think we are mixing apples and oranges here. Your first analogy compared driving with credit, and you used the example of getting a speeding ticket, saying that you get points for it no matter how perfect your driving record is. You used that example to justify the FICO practice of penalizing anyone for having a collections item on their record with the same degree of severity.

Your second analogy seems to be saying the opposite, that the penalty (i.e., the cost of insurance) should fit the history. This is exactly what I am saying. Let the punishment fit the crime.

No sensible person would assert that someone whose record of purchasing and paying has earned a score of 762 over a period of decades is suddenly going bad because a minuscule amount of money was allegedly not paid on time. If anything, an anomaly like that would almost have to indicate an oversight, not deliberate neglect, given the credit history. Not only that, but if this offense is in collections, then it is clearly old, therefore cannot be said to represent the debtor's current behavior nor be an indicator of the debtor's current financial situation.

That being said, I submit to those of you who believe that the FICO method of determining our worth is valid. DIscussion over. Now I have to turn my attention to getting this thing off my credit report.

Okay let me chime back inhere. A collection isn't just a...

Anonymous — Mon, 09 Apr 2007 11:17:15 GMT

Okay let me chime back inhere. A collection isn't just a miss. It is an indication that a debt was completely defaulted on. You asked for answers and that unfortunately is the way the scoring mosel works. There are no whys or what ifs involved. Just a computer crunchig out mubers based on past credit performances in a large group of borrowers. If someone in yuor score range defaults on a dbt, it is seen as a HUGE red flag that more are likely to come.

You stated this was paid, it shoudln't be a big issues to get it corrected as long as you have proof of payment.

Columbia House

Anonymous — Mon, 09 Apr 2007 11:18:54 GMT

I found a forum with multiple posts about Columbia House making a practice of reporting collections for people who didn't know they owed Columbia House money.

http://www.consumeraffairs.com/entertainment/columbia_house.htm

This is a great example of why these "negatives" deserve to be treated a little more carefully than simply by lopping points off a person's score. There are countless people out there whose credit record has been besmirched by this company. Why do we bear the brunt of it when it's the company that's at fault?