topic Subprime and Prime identifing. in myFICO® Forums Technical Help

Subprime and Prime identifing.

Anonymous — Sun, 17 Jun 2007 07:10:57 GMT

Lenders base rates on FICO scores. Why not also base FICO scores on rates!

If it ever becomes possible to change the grouping to ignore banks and types of accounts (ie subprime) and instead identify the interest rates for those accounts. Because someone receiving a 0% apr from a subprime loan should be rewarded (they would have to have good credit) vs a person that pays 25% on a loan (they would have to have bad credit or be desperate). I doubt you are able to do this now, but maybe a possible change for the future. Because I always take any opportunity to borrow money rather than use my own for smart business reasons if interest rate is low.

So maybe in the future
Prime loans 6% and lower.
Medium loans 6-8%
Low loans 8-10%
Subprime loans 10-18%
Sub Subprime loans 18-32%

This way, everyone gets treated equally and the type or bank, or title would have nothing to do with the scoring. Only the interest rate. That in my opinion would be extremely accurate. If interest rates ever find their way on a credit report to be possible. :-) Thank you for listening.

Message Edited by ilovepizza on 06-17-2007 12:10 AM

Re: Subprime and Prime identifing.

Anonymous — Fri, 22 Jun 2007 23:55:47 GMT

I daresay the lenders with products labeled as subprime would file suit against FI and win.

Re: Subprime and Prime identifing.

Tuscani — Sat, 23 Jun 2007 01:42:33 GMT

Noah_Bodie wrote:

I daresay the lenders with products labeled as subprime would file suit against FI and win.

Yep

Re: Subprime and Prime identifing.

fused — Wed, 27 Jun 2007 20:14:17 GMT

ilovepizza wrote:
Lenders base rates on FICO scores. Why not also base FICO scores on rates!

If it ever becomes possible to change the grouping to ignore banks and types of accounts (ie subprime) and instead identify the interest rates for those accounts. Because someone receiving a 0% apr from a subprime loan should be rewarded (they would have to have good credit) vs a person that pays 25% on a loan (they would have to have bad credit or be desperate). I doubt you are able to do this now, but maybe a possible change for the future. Because I always take any opportunity to borrow money rather than use my own for smart business reasons if interest rate is low.

So maybe in the future
Prime loans 6% and lower.
Medium loans 6-8%
Low loans 8-10%
Subprime loans 10-18%
Sub Subprime loans 18-32%

This way, everyone gets treated equally and the type or bank, or title would have nothing to do with the scoring. Only the interest rate. That in my opinion would be extremely accurate. If interest rates ever find their way on a credit report to be possible. :-) Thank you for listening.

Message Edited by ilovepizza on 06-17-2007 12:10 AM

The jury has not reached a verdict on this. It is believed FICO will begin to do this with their new scoring model but it has not been confirmed yet.

Re: Subprime and Prime identifing.

Anonymous — Wed, 27 Jun 2007 23:14:20 GMT

that is such a circular mess of horsecrap, if they were to do so. i have bad credit, so i have to get a subprime account, which will make my credit even worse. just doesnt seem right.

just like the whole idea that i have bad credit, so i will pay 18% on a car loan, so that i am less likely to make the higher monthly payment.

that'll teach us subprime borrowers a lesson!

Message Edited by dog on 06-27-2007 07:14 PM

Re: Subprime and Prime identifing.

Anonymous — Thu, 28 Jun 2007 08:47:06 GMT

fused111 wrote:

The jury has not reached a verdict on this. It is believed FICO will begin to do this with their new scoring model but it has not been confirmed yet.

Yeah, right, sure.

OK, I'll bite. What exactly will be the criteria for determining whether a given CC or loan is prime, medium, low, subprime, or sub subprime? Remember that BTs, cash advances, and purchases are sometimes under different APRs and may be in different Primegories. If I have $3,214.69 from 0% APR BT, $783.34 from 12.5% cash advances, and $948.13 from 7.8% purchases, what's my CC Primegory this month?

I daresay the lenders would decide up yours FI, and refuse to report any APR info--along with the class action suit that would bury tiny FI with $1.3 billion in assets.

Ever read the TOS? All the recent credit repair is forbidden talk jibberjabber? It was came about because of a lawsuit brought by The Three Stooges (EQ, EX and TU). Experian has but $2 billion in assets.

Now consider that the 10th largest U.S. bank, State Street Corp, has $88 billion in assets. Citigroup has $2 trillion in assets. The lenders could dig a hole, stick FI in it, wave bye-bye, and they'd move on their merry way using Vantage or a myriad of other scoring schemes. Done. Over. Next.

The CRAs are street punks. The banks are the mafia. Not the real life often goofball mafia, but the Hollywood big screen, all knowing, all powerful, kill your horse and stick it's head in bed with you while you sleep between snores mafia. They got guys who make Luca Brasi look like a punk and who don't even fear Vito Corleone himself. I am speaking figuratively.

FICO score is all about risk, not how much you like the particular loan program or how appealing the terms of the loan may or may not be. Term of the loan, interest, payments, downpayment, rewards, cash back, etc. are all what might well be deemed priviledged information. None of FI's FICOin' business.

Debtor #1 drives a financed $110K Mercedes, lives in an $950K home, and earns $300K a year. But he's late on his mortgage, car loan, or CCs at least 4 times a year. CCs balances have been steady climbing, he's maxed out 4, paying the minimums, just got a 5th CC 2 months ago and he's starting to run that one up.

Debtor #2 drives a 4 year old Chevy (paid off 1 year ago), lives in a $110K home, and earns $45K a year. He's never been late, has 2 CCs, util is about 7%.

I don't give a rat's butt about the CC APR. I know who's a bigger risk.

OCs would fight it tooth and nail because they know they are in a competitive business. Posting the loan APR info in CRs would cause soft pulls on your CRs to skyrocket as the CCCs got into a dirty, scappy, knock down, drag out fight.

"Heh there Mr. Jones, this is Tom from Citibank Credit Card Services. We noticed that you have a balance of $2,100 at 18.9% on your Chase MC. Sir, we can beat that, and then some. How's about we BT that balance over to your Citibank VISA at say 14.9% for 6 months?"

The OCs know it would happen because someone would start and it would snowball from there. They make big bucks off high APRs and anything that knocks it down is bad for business.

You might have FICOs in the 800s but still have a couple of $500 CL, 19.2% CCs in your wallet. Why? I don't know. You're a bad negotiator. That's what high APR CCs mean. Has zero to do with risk.

OK, enough of my ranting and enough with the nonsense. Show me one single, solitary, even remotely credible article speculating about this anywhere in any remotely credible news source. Bathroom walls don't cut it.

Re: Subprime and Prime identifing.

fused — Thu, 28 Jun 2007 16:09:29 GMT

Noah:

I can't say I disagree with you. My post was in response to the OP. FICO might or might not do this. Whatever FICO does, it doesn't matter if I like it or not. The thread below clearly suggests a possible change.

http://www.patchworktechnologies.com/ficoscoresfinal.swf

Message Edited by fused111 on 06-28-2007 06:09 AM

Re: Subprime and Prime identifing.

Anonymous — Fri, 29 Jun 2007 08:22:09 GMT

fused111 wrote:
The thread below clearly suggests a possible change.
http://www.patchworktechnologies.com/ficoscoresfinal.swf

Not sure about a thread. More like a presentation. And I still didn't see even a hint about the CC itself serving as an indicator of risk.

Re: Subprime and Prime identifing.

fused — Fri, 29 Jun 2007 17:07:18 GMT

Noah_Bodie wrote:

fused111 wrote:
The thread below clearly suggests a possible change.
http://www.patchworktechnologies.com/ficoscoresfinal.swf

Not sure about a thread. More like a presentation. And I still didn't see even a hint about the CC itself serving as an indicator of risk.

Around three minutes into the presentation, percentages (perhaps score values) are shown for CCs, mortgages and auto loans, and each of these has two categories prime and subprime. Didn't you see this? Am I the only who thinks somethings might change after watching this?

Re: Subprime and Prime identifing.

MidnightVoice — Fri, 29 Jun 2007 17:11:32 GMT

fused111 wrote:

Around three minutes into the presentation, percentages (perhaps score values) are shown for CCs, mortgages and auto loans, and each of these has two categories prime and subprime. Didn't you see this? Am I the only who thinks somethings might change after watching this?

No, and I am the one who noticed they had slipped that in

I am SURE they are gonna do it one way or another

Re: Subprime and Prime identifing.

Anonymous — Fri, 29 Jun 2007 17:26:07 GMT

fused111 wrote:

Around three minutes into the presentation, percentages (perhaps score values) are shown for CCs, mortgages and auto loans, and each of these has two categories prime and subprime. Didn't you see this? Am I the only who thinks somethings might change after watching this?

I'll have to watch it again. I saw the categories, but I think those are FIs scoring pools (Thin, New, Seasoned, et al.)

I look at the software industry and the ferocious firefights in court over who struck John, or Bill, or Steve, or Larry, etc. Their lawyers are fiercely protective of what's viewed as "theirs". I think the same sort of vigor would be exhibited by lenders.

FICO tallies up the risk factors, and delivers a score. That score is blind to race, creed, color, ethnicity, sex, age, salary, employment history, state you live in, neighborhood you live in, home you live in, car you drive, education level, height, weight, blood pressure, predisposition for cancer, political party affiliation, bumperstickers on your car, charitable giving, and a myriad of other things which do not determine your risk to pay or default on bills.

After FICO delivers the score, a CCC decides whether you get a CC and what the terms will be. Once you get the CC, terms of the CC may be negotiated over time. Requests for CLI and APR reduction. Lenders grant or don't grant based upon their criteria, and their criteria are very, very, very broad compared to what FICO considers. FICO looks at concrete things where there's a pattern and history of risk associated with the thing. For example, FICO does not look at salary, time in your job, do you rent or own, where do you bank, checking or savings or both, DTI, and a number of other things that lenders DO consider.

By assessing the CC or loan product itself, and assigning a risk to it, FICO would only further the divide between primes and subprimes. Prime CC holders FICO scores would bump up, and subprime CC holders would bump down. Congress is already looking at legal reform because of CC practices. If FICO did it, the legal reform would be all but assured and further reaching.

I stand by my prediction that if it ever happened, it would not stand up to the numerous legal challenges that would follow.

Re: Subprime and Prime identifing.

MidnightVoice — Fri, 29 Jun 2007 17:31:13 GMT

Well, it already talks about "consumer finance companies - bad", and no one has sued yet

Re: Subprime and Prime identifing.

Anonymous — Fri, 29 Jun 2007 17:50:59 GMT

MidnightVoice wrote:
Well, it already talks about "consumer finance companies - bad", and no one has sued yet

Yet, and that we know of.

That's a bit different because consumer finance companies are specifically identified as such by their bureau subscription codes--not their products. The lender itself is engaged in a subprime business, if you will. But you're right, there are four potential codes from using a CFC and paying ontime. [MyFico is cited by ICFE as the source of this info.]

http://www.financial-education-icfe.org/financial_news_press_releases/2004/20040726_adverse_action_codes_used_by_CRAs_that_affect_consumer_credit_scores.asp

CFCs I suspect are very small potatoes without a lot of spare cash to sue. There might be a lot of them, and they might amount to a lot of business, but Chase, Citi, AMEX, BOA and other prime lenders have products which could easily be labeled subprime. Take on those boys, and I have no doubt they'll sue and win.

Sidenote: Do check out the ICFE link. They looked to have some useful debt, credit, CC info.

Re: Subprime and Prime identifing.

Tuscani — Fri, 29 Jun 2007 17:58:01 GMT

Good link. ICFE should read the Scoring 101 thread though.

"The ICFE wants consumers to understand if you have accessed more that 50 percent of your available credit limits on credit cards, your credit score will suffer."

Re: Subprime and Prime identifing.

fused — Fri, 29 Jun 2007 18:01:30 GMT

Noah:

Rather FICO does this or not, most consumers have an opportuntiy that is not new. Forget about the AUs, many can become joint account holders or help someone else become one. This is a simple way to get out of the subprime pool and jump into the prime one.

Re: Subprime and Prime identifing.

Anonymous — Fri, 29 Jun 2007 18:11:24 GMT

fused111 wrote:
many can become joint account holders or help someone else become one. This is a simple way to get out of the subprime pool and jump into the prime one.

But there are also many who cannot leverage a joint account to improve their scores. If both the husband's and wife's score is suffering, one ain't gonna pull the other up.

With AU benefits going away, I suspect there's going to be more than a few who are going to try and leverage a joint account with an unconventional relationship. One that jumps right out at me would be two members of a church. If the trust is there, one member adds another member in credit need as a joint account holder. Debtor in need pledges to the Sunday School Class or Men's Group or whatever to accept the joint account status, give back to the member with the good credit history the CC when it arrives in the mail so the debtor won't be tempted.

There's a church on the eastcoast, in Virginia I think, that made news several years ago because they were paying off their members CCs. They wouldn't pay off homes or cars, just CCs. Church member had to go through some required credit/debt counseling that the pastor and others at the church provided. Because I've never heard back about it in the news, then I presume it's been successful. Had things gone badly I'm sure that woulda made news.

Consumer groups would also rise up and fight such a FICO change I imagine. Anything that unites debtors and creditors doesn't seem to stand much of a chance.

Re: Subprime and Prime identifing.

fused — Fri, 29 Jun 2007 19:31:56 GMT

Noah:

Might we see these same sleazy companies who have been selling seasoned TLs for AUs now try and do the same for joint account TLs?

Re: Subprime and Prime identifing.

Tuscani — Fri, 29 Jun 2007 20:09:45 GMT

fused111 wrote:

Noah:

Might we see these same sleazy companies who have been selling seasoned TLs for AUs now try and do the same for joint account TLs?

Doubt it.. You are now talking about debt liability.

Re: Subprime and Prime identifing.

Anonymous — Fri, 29 Jun 2007 22:47:18 GMT

Like Tuscani said. Not likely. I suppose anything is possible, but it's going to require a considerable amount of juggling to make it happen.

When a con man sets up a con, he generally doesn't wanna risk more than he can afford to lose. Computer, printer, paper to send out bogus lottery checks. Rent some office space that's sitting vacant and doesn't want cash up front. Easy, peasy.

Joint account status opens up the con man's credit to the deep unknown. The person wanting to "rent" a joint account might be some honest mark, but it could just as easily be another con man.

Con in con man stands for confidence, but it also means control. Control the situation and control the mark. With a joint account, it's shared control and that's no kinda control for the con man.

To "rent" a joint account, there's going to have to be some serious trust in play. Personally I can't think of anyone, aside from my wife or one of my kids (they're 2 and 6 so it's gonna be a while) I'd sign onto a joint account with. Would never cosign a loan, although I'd float a downpayment.

Even my church example is going to be a stretch. There are stories of con men conning churches.

Re: Subprime and Prime identifing.

fused — Fri, 29 Jun 2007 23:13:32 GMT

Tuscani and Noah:

My bad, I should have included this in my earlier post. What I meant was will these same companies be in the business of selling joint accounts with intention that their clients never actually receive the card and do not know the account#? This way the company cannot get burned.

Message Edited by fused111 on 06-29-2007 01:13 PM