topic Re: FICO 2008: Better, But Not Good Enough in General Credit Topics

FICO 2008: Better, But Not Good Enough

Anonymous — Fri, 25 Apr 2008 01:16:30 GMT

I'm eagerly awaiting the new scoring system, but I fear it's not going to be tough enough on those with really bad credit (chronic missed payments, severe delinquencies, bankruptcies, etc) while squeezing people who should be scored higher. If I had a chance to talk to the Fair Isaac people, these would be the major points I would bring up in the scoring system:

(1) NO CONSIDERATION OF FINANCIAL ASSETS: I understand FICO is a credit-scoring system and not supposed to be an asset-scoring system. Still, if someone has sufficient financial assets -- bank CD's, a brokerage account, mutual funds, etc -- chances are that not only can those assets be used during financially difficult times to make payments, but it also indicates someone more financially responsible. Ditto those with 401(k)'s, IRA's, etc. If 2 people both earn $75,000 and have identical credit histories, but one has $50,000 in bank CD's and mutual funds worth $125,000, which one should be ranked higher on the FICO system ??

(2) INQUIRY PENALTIES: It's ridiculous that the current (and probably future) system penalizes you when lenders look at your score. If 20 credit card companies look at my FICO rating or 10 mortgage lenders, what does that have to do with my paying ability? This is a relic from the 1960's and 1970's, when at most you had 1 or 2 credit cards and nobody ever refinanced a mortgage. What does an inquiry from a lender or someone spamming me with card applications have to do with my ability or willingness to pay ??

(3) LATE PAYMENTS: You still get too severely nicked by late payments. I believe the system treats payments a few days past due as those 30 days past due (maybe I'm wrong?). But in any event, they still really knock your score down alot and with card companies slow to process/credit your account, and electronic payments occasionally forgotten to be processed by borrowers, it's easy to have a few payments a few days late before you remember and drop it off in the mail or zip it there electronically. It's one thing for the card company to charge you their bogus late fees -- but unless it hits 31 days, it shouldn't be a FICO negative event.

(4) BORROWING CAPACITY: The focus on percentage of card limits being used is misplaced. You can shift balances around (as I have done) and if anything, it should be TOTAL CARD LIMITS relative to TOTAL CURRENT DEBT. If I have total card limits of $50,000 over 5 cards, but 3 are totally empty and 2 are maxed out to $10,000 each, what's the difference if I had 5 cards each with $4,000 on them ???

(5) JOB HISTORY: The credit bureau's don't really seem to have good information on job histories, especially those with lots of job changes (something I am familiar with). I'm currently with a very large company which should count for something more than if I was with 'Joe's Auto Repair' or something like that. If you have multiple jobs but not big unemployment gaps, that should also be a plus as should long periods of continuous employment with a single employer.

(6) FIXED PAYMENT HISTORY: Previous payments of fixed obligations like an auto loan, mortgage, or other installment credit don't seem to be ranked that highly. If I made dozens of payments in a row on a house or auto loan for thousands of dollars each month total, shouldn't that count more than if I missed a payment or was late on a $750 balance with a minimum payment of $35 on some dumb credit card ??

(7) INCOME VERIFICATION: If annual history can't be retrieved by FICO, then a range should be established. You should have the chance to submit Federal 1040's establishing income to boost your score if FICO is unable to ascertain income levels or ranges. Would you submit your most recent 5 1040's with proof of income if it raised your score 50-75 points off the bat ???

The FICO scores were easily rigged and manipulated in the last few years by people who wanted to qualify for huge mortgages. If a few of my suggestions above were in place, fraudulent buyers would have been scored alot lower and never gotten the mortgages in the first place.

FWIW, I've been paying off debt heavily the last 18 months and have upped my FICO score from about 615 to 697 (it's been rising very very slowly since crossing 680 about 6 months ago !). My score was over 700 back in 2005 or 2006, but I missed a few payments and it cratered pretty quickly. I was never 30 days delinquent and yet it fell alot more quickly than it went back up.

Message Edited by 700Man on 04-24-2008 06:16 PM

Re: FICO 2008: Better, But Not Good Enough

MidnightVoice — Fri, 25 Apr 2008 00:53:48 GMT

Could you possibly edit your post and put in some paragraph breaks? It is a tad dense as it is.

Thanks

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Fri, 25 Apr 2008 01:44:32 GMT

700Man, I can sense your frustration, but remember, FICO scoring is based on statistical analysis of information. No matter how much you like/don't like or think it makes sense or is ridiculous, if FICO's past statistics show that people with lots of inquiries or a few 30 day lates are more likely to default, then it *will* affect your FICO score in a manner proportionally consistent with the statistics. I really doubt the FICO model is based on arbitrary factors.

I see your points about taking additional information into consideration, but I personally think that's the job of the lender, not Fair Isaac. FICO is intended to be a score that reflects your credit history, to the exclusion of all else. I don't think your FICO score is intented to be the end-all be-all measure of credit worthiness. I don't think any reputable mortgage lenders rely on your FICO score alone.

To provide a counter-argument to your "assets in the bank" position, if Person A has assets in the bank and Person B does not, but they both have "30 day past due" markers on their records, then clearly Person A's assets didn't help them avoid missing that payment. Maybe Person A is simply unwilling to cash in those assets to pay a debt, in which case they are of no value to creditors. It's your past actions that FICO reflects, not how or why or what you could have done or would do in the future.

Also, regarding 30 day lates, I'm pretty sure that an account is only "30 days past due" when you pay 30 or more days after the "payment due date". So, if you're credit card payment is due on the 8th, and you pay on the 9th, your CCC will bill you a late fee, but I don't think that they can report you as being 30 days past due.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Fri, 25 Apr 2008 02:49:01 GMT

700Man wrote:
I'm eagerly awaiting the new scoring system, but I fear it's not going to be tough enough on those with really bad credit (chronic missed payments, severe delinquencies, bankruptcies, etc) while squeezing people who should be scored higher. If I had a chance to talk to the Fair Isaac people, these would be the major points I would bring up in the scoring system:

(1) NO CONSIDERATION OF FINANCIAL ASSETS: I understand FICO is a credit-scoring system and not supposed to be an asset-scoring system. Still, if someone has sufficient financial assets -- bank CD's, a brokerage account, mutual funds, etc -- chances are that not only can those assets be used during financially difficult times to make payments, but it also indicates someone more financially responsible. Ditto those with 401(k)'s, IRA's, etc. If 2 people both earn $75,000 and have identical credit histories, but one has $50,000 in bank CD's and mutual funds worth $125,000, which one should be ranked higher on the FICO system ??

They should both be ranked the same, IF they have identical credit history- but who does? Bank CD's/mutual funds/IRAs/401(k) etc should have no effect on your credit.

Let me ask you........who is most likely to default

Person A- Makes $60,000 per year. Single. No minor Children. Car Paid for. NO work expenses. Mortgage of $400ish per month. Has a 401k with a large amount invested in it.

Person B- Makes $25,000 per year. Married. Spouse is full time student. 2 minor children. $200 car payment. Work expenses such as gas back and forth. Mortage of $315 per month. No 401(k), no savings, no checking.

Person A was just foreclosed on December 2007. Person B was not.

(2) INQUIRY PENALTIES: It's ridiculous that the current (and probably future) system penalizes you when lenders look at your score. If 20 credit card companies look at my FICO rating or 10 mortgage lenders, what does that have to do with my paying ability? This is a relic from the 1960's and 1970's, when at most you had 1 or 2 credit cards and nobody ever refinanced a mortgage. What does an inquiry from a lender or someone spamming me with card applications have to do with my ability or willingness to pay ??

Promotional Inquiries do not affect score. I am borderline on whether inquiries with PP should hurt or not. I can see the point that someone with multiple may be seeking lots of credit and may have recently opened accounts that are not reporting yet. However, a lender can do a manual review and see this for themselves. Requesting credit really has nothing to do with your willingness to pay or payment history. Isn't that what credit scores are too reflect? Then again, isn't that what our CR should reflect? What credit we've been given and how we managed that credit......does an inquiry say anything about how we managed our credit?

(3) LATE PAYMENTS: You still get too severely nicked by late payments. I believe the system treats payments a few days past due as those 30 days past due (maybe I'm wrong?). But in any event, they still really knock your score down alot and with card companies slow to process/credit your account, and electronic payments occasionally forgotten to be processed by borrowers, it's easy to have a few payments a few days late before you remember and drop it off in the mail or zip it there electronically. It's one thing for the card company to charge you their bogus late fees -- but unless it hits 31 days, it shouldn't be a FICO negative event.

If you are getting a 30 day late because you were a few days late.....that is the creditor who is reporting it at fault. I don't think the CRA actually know how many days you are late.

(4) BORROWING CAPACITY: The focus on percentage of card limits being used is misplaced. You can shift balances around (as I have done) and if anything, it should be TOTAL CARD LIMITS relative to TOTAL CURRENT DEBT. If I have total card limits of $50,000 over 5 cards, but 3 are totally empty and 2 are maxed out to $10,000 each, what's the difference if I had 5 cards each with $4,000 on them ???
I do not know a whole lot about util, except that FICO wants to see that you can have credit available and manage it without maxing out all of your available credit.

(5) JOB HISTORY: The credit bureau's don't really seem to have good information on job histories, especially those with lots of job changes (something I am familiar with). I'm currently with a very large company which should count for something more than if I was with 'Joe's Auto Repair' or something like that. If you have multiple jobs but not big unemployment gaps, that should also be a plus as should long periods of continuous employment with a single employer.

Job history doesn't affect your score. It isn't even required to be on your CR.

(6) FIXED PAYMENT HISTORY: Previous payments of fixed obligations like an auto loan, mortgage, or other installment credit don't seem to be ranked that highly. If I made dozens of payments in a row on a house or auto loan for thousands of dollars each month total, shouldn't that count more than if I missed a payment or was late on a $750 balance with a minimum payment of $35 on some dumb credit card ??

Payment history counts for 35% of your score, more than anything else. This includes "dozens of payments in a row" as well as late payments.

(7) INCOME VERIFICATION: If annual history can't be retrieved by FICO, then a range should be established. You should have the chance to submit Federal 1040's establishing income to boost your score if FICO is unable to ascertain income levels or ranges. Would you submit your most recent 5 1040's with proof of income if it raised your score 50-75 points off the bat ???

Income is not and should NOT be included in credit score. Why should I have a lower score because I make less than average income or median income? Why should someone who makes more than me have a higher score than me? Income has nothing to do with your willingness to pay or your payment history.

The FICO scores were easily rigged and manipulated in the last few years by people who wanted to qualify for huge mortgages. If a few of my suggestions above were in place, fraudulent buyers would have been scored alot lower and never gotten the mortgages in the first place.

FWIW, I've been paying off debt heavily the last 18 months and have upped my FICO score from about 615 to 697 (it's been rising very very slowly since crossing 680 about 6 months ago !). My score was over 700 back in 2005 or 2006, but I missed a few payments and it cratered pretty quickly. I was never 30 days delinquent and yet it fell alot more quickly than it went back up.

How can you miss a payment but never be 30 days delinquent? And if you went from having absolutely nothing negative on your report to having a late, you were probably rebucketed.

Message Edited by 700Man on 04-24-2008 06:16 PM

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Fri, 25 Apr 2008 04:33:16 GMT

Most of all OP stated was included from the FICO 08 news release leaving out income. The problem with income and savings is that someone can loose a job, spend all their money. A spender will spend no matter how much they earn. Home owners already get more credit when they apply because they have a solid asset. Every app mostly asks, OWN or RENT. That is a huge key in approvals and credit lines.

Re: FICO 2008: Better, But Not Good Enough

bott6698 — Fri, 25 Apr 2008 05:16:05 GMT

But is fico 2008 ever going to hit lol.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Fri, 25 Apr 2008 14:51:37 GMT

I mostly skimmed OP's post (feeling a tad lazy today) but I do want to chime in on one point - I completely disagree that someone who works for a large corporation should receive brownie points over someone who works at a small company.

Why should someone be penalized because they work at a small business? That makes no sense to me - especially as someone who has worked for both. The large corporation had no problem laying me (and DH) off and sending us into a potential financial tailspin, while the small businesses I've worked for have been much more human, caring, and stable. Just my opinion/experience.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sat, 26 Apr 2008 03:51:28 GMT

Guys:

(1) If you work for Goldman Sachs instead of Mike's Financial Services, sorry, you're a better credit risk IMO working for Goldman Sachs.

(2) Anybody can default, and anybody can make a payment, but this is about PROBABILITIES. Give me 2 guys...each with equal incomes...similar jobs...but one has 6-figures in bank CD's and a nice brokerage account and the other doesn't. Now...they both get layed off, for 6-12 months. Who's more likely to keep making minimum payments? 90% or more of the time, it'll be the guy with the assets which generate INCOME when he/she isn't working.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sat, 26 Apr 2008 04:01:19 GMT

Sidewinder, income most absolutely SHOULD be included in a credit score. How can you say that income doesn't relate to willingness/ability to pay? That's absurd.

Yes, a guy making $500,000 can decide to stiff all his/her credit card companies on a lark. And someone making $35,000 can keep making minimum payments that consume 30% of his/her after-tax paycheck. BUT HOW LIKELY IS EACH ONE ?

As I said above, this is about PROBABILITIES and forecasting LIKELIHOODS. Income most certainly should be a factor in FICO scoring since, in fact, the best scores are positively correlated with income (and also assets, home location, etc).

Do those GUARANTEE you'll be a good credit risk? Of course not. But they increase the odds tremendously.

If you don't think so, ask yourself this: if you were a lender, and were told to make a home mortage loan 100% TOTALLY BLIND, and the only thing you knew was that one applicant lived and wanted a mortgage for his/her house in the South Bronx, and the other wanted his/her mortgage for Great Neck, Long Island (a very posh place), which would YOU lend to ????

Message Edited by 700Man on 04-25-2008 09:01 PM

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sat, 26 Apr 2008 04:06:39 GMT

700Man wrote:

Do those GUARANTEE you'll be a good credit risk? Of course not. But they increase the odds tremendously.

What evidence is there of this besides the fact that it just "seems" like it should be the case? Do you think the numbers crunchers at FI never considered this? Wouldn't you imagine that all sorts of variables have been run through the wringer in order to generate the scoring algorithm?

I guarantee that FI has better evidence regarding the predictiveness of any particular variable than you or I do.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sat, 26 Apr 2008 04:16:04 GMT

cheddar wrote:

700Man wrote:

Do those GUARANTEE you'll be a good credit risk? Of course not. But they increase the odds tremendously.

What evidence is there of this besides the fact that it just "seems" like it should be the case? Do you think the numbers crunchers at FI never considered this? Wouldn't you imagine that all sorts of variables have been run through the wringer in order to generate the scoring algorithm?

I guarantee that FI has better evidence regarding the predictiveness of any particular variable than you or I do.

Well said Cheddar.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sat, 26 Apr 2008 04:27:41 GMT

700Man wrote:
Guys:

(1) If you work for Goldman Sachs instead of Mike's Financial Services, sorry, you're a better credit risk IMO working for Goldman Sachs.

Interesting example, but I'm curious why you chose Goldman Sachs to illustrate your point. Why not some other large, publicly traded company like Bear Stearns?

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sat, 26 Apr 2008 04:45:47 GMT

700Man wrote:
Sidewinder, income most absolutely SHOULD be included in a credit score. How can you say that income doesn't relate to willingness/ability to pay? That's absurd.

Income has NOTHING to do with willingness to pay. Yes it has to do with the ability to pay, but the lender judges that. Your credit history and/or score has nothing to do and is not there to reflect your ability to pay, it is there to reflect your willingness to pay. Credit reports and scoring is all about how you MANAGE your money not how MUCH money you have.

Yes, a guy making $500,000 can decide to stiff all his/her credit card companies on a lark. And someone making $35,000 can keep making minimum payments that consume 30% of his/her after-tax paycheck. BUT HOW LIKELY IS EACH ONE ?

How likely each is to happen would require a great deal of research. More research than I have time for. However, income has nothing to do with how likely each of those are to happen. A persons circumstances and morals have to do with that.

As I said above, this is about PROBABILITIES and forecasting LIKELIHOODS. Income most certainly should be a factor in FICO scoring since, in fact, the best scores are positively correlated with income (and also assets, home location, etc).

What do you have to back this theory? I know people who make WAY more than I do and have as bad or worse scores than myself. In fact one of them owns a substantial amount of land and other assets.I also know people who make less than I do and have way better scores than myself.

Do those GUARANTEE you'll be a good credit risk? Of course not. But they increase the odds tremendously.
If you don't think so, ask yourself this: if you were a lender, and were told to make a home mortage loan 100% TOTALLY BLIND, and the only thing you knew was that one applicant lived and wanted a mortgage for his/her house in the South Bronx, and the other wanted his/her mortgage for Great Neck, Long Island (a very posh place), which would YOU lend to ????
Unrealistic. Now you are basically saying where one lives has something to do with their credit risk/willingness to pay?

Message Edited by 700Man on 04-25-2008 09:01 PM

Why not include education level, parent's education level, your quality of life growing up, how many kids you have, your marital status, etc in with scoring?

By your reasoning, all of these factors would affect your credit risk.

Someone making $100,000 with 5 kids should be the same risk as someone making $25,000 with no children, right? It does cost a lot to raise children.

If you went to college or even graduate high school that means you are more financially responsible than someone who didn't, since you are more educated, correct?

Need to consider parent's education level as well, that way you can judge whether the parents were educated enough to teach their children financial responsibility.

Let's not forget your childhood quality of life. Everyone knows if you grew up with little valuables and didn't have many luxuries that you are gonna strive to have those things as adults and for your own children, therefore you will be more likely to run up giant amounts of debt buying those things and then spend your income on more things instead of bills.

Message Edited by sidewinder on 04-25-2008 09:45 PM

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sat, 26 Apr 2008 05:04:41 GMT

KUDO'S TO SIDEWINDER!!!!!!!!!!!!!!!!!!!!!!!!!!

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sun, 27 Apr 2008 02:53:46 GMT

Good God 700 man--are you nuts?

Message Edited by casinoannie97 on 04-26-2008 07:53 PM

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sun, 27 Apr 2008 02:54:12 GMT

"What evidence is there of this besides the fact that it just "seems" like it should be the case? Do you think the numbers crunchers at FI never considered this? Wouldn't you imagine that all sorts of variables have been run through the wringer in order to generate the scoring algorithm? I guarantee that FI has better evidence regarding the predictiveness of any particular variable than you or I do."

Please...if FairIsaac's system were that good, they wouldn't be updating it.

Not to mention that their scoring system was totally given the end-around by savvy scammers who manipulated the scoring system thereby qualifying for mortgages they had no business even sniffing. Someone with FICOs in the 500's getting a $700,000 mortgage? Please....

I watched the entire housing bubble come to fruition because companies like New Century, Novastar, Freemont, etc, enabled and contributed to the lax FICO scoring with dubious lending standards.

At the end of the day, FairIsaac is a company run by fallible individuals, the same ones who stuck tens of billions in CDO's on the books of Bear Stearns, Merrill Lynch, Citibank, and AIG. Those were people whom you would no doubt say had much better evidence regarding the safety of those instruments than you or I.

WRONG !!

If I were a lender, would I look at a FICO score? Sure.

Would I trust it? No.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sun, 27 Apr 2008 02:57:29 GMT

No, CasinoAnnie, I'm not nuts -- I'm someone who's worked in banking and has never had to report credit losses because I do focus on the stuff that I mentioned, that's all.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sun, 27 Apr 2008 03:22:06 GMT

700Man wrote:

Not to mention that their scoring system was totally given the end-around by savvy scammers who manipulated the scoring system thereby qualifying for mortgages they had no business even sniffing. Someone with FICOs in the 500's getting a $700,000 mortgage? Please....

Think about what you just said, and notice the contradiction.

If those people's FICOs were in the 500s, how exactly was scoring system manipulated?

Perhaps lenders were approving loans for people who didn't have the FICO scores to qualify for them. I'm not sure how that is the fault of the scoring system, though. If people in the 500s were being approved for $700K mortgages, then it was the lenders who completely ignored the fact that they had FICOs in the 500s!

If the scoring algorithm assigns someone a score in the 500s, but lenders ignore the warnings that should go up with that kind of score, it does not mean the scoring algorithm didn't do its job.

Message Edited by cheddar on 04-26-2008 08:22 PM

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sun, 27 Apr 2008 04:25:17 GMT

Cheddar, I mis-typed....I meant they were really people whose scores SHOULD have been in the 500's or 600's and instead were graded closer to 720-750. People games the scoring system, lied, committed fraud, and also used that 'authorized signer/borrow someone's credit score' rig quite frequently since 2005.

I spoke to the president of a large local bank. He told me that FICO used to be EXTREMELY reliable for years -- decades, really -- when credit was much less ubiquitous, people felt an obligation to pay off debts, and they didn't go overboard. But the whole thing began to unravel bigtime about 2002-03 when lending and scoring systems were gamed.

I don't blame Fair Isaac -- but I do think that they would be doing the right thing for both good and bad credits by getting the scores more accurate. I think including more variables is a means toward that end. If the variables I cited don't work, eliminate them or underweight them. But they DO work -- and maybe that's why they aren't being included.

Re: FICO 2008: Better, But Not Good Enough

Anonymous — Sun, 27 Apr 2008 04:57:31 GMT

700Man wrote:
Cheddar, I mis-typed....I meant they were really people whose scores SHOULD have been in the 500's or 600's and instead were graded closer to 720-750. People games the scoring system, lied, committed fraud, and also used that 'authorized signer/borrow someone's credit score' rig quite frequently since 2005.

This is part of the reason that FICO is being updated. To eliminate people using someone else's good credit in order to make theirs look more desirable.

I spoke to the president of a large local bank. He told me that FICO used to be EXTREMELY reliable for years -- decades, really -- when credit was much less ubiquitous, people felt an obligation to pay off debts, and they didn't go overboard. But the whole thing began to unravel bigtime about 2002-03 when lending and scoring systems were gamed.

I don't blame Fair Isaac -- but I do think that they would be doing the right thing for both good and bad credits by getting the scores more accurate. I think including more variables is a means toward that end. If the variables I cited don't work, eliminate them or underweight them. But they DO work -- and maybe that's why they aren't being included.

If lenders are looking at ONLY FICO scores and not actually looking at the CRs themselves........well then it is the lenders fault.

It doesn't matter what your FICO score is, a manual review should ALWAYS be done.

FICO has nothing at stake, they aren't lending the money based on the scores. So why would they not include variables that you say do work to better predict a person's probability of not defaulting.

Do you think lenders should be able to just say ok give me your name, dob, SS# and let me pull your credit score and I'll base my decision?

Absolutely not, they ask for income, they ask for family size, they ask for employment history, they SHOULD investigate these things and make sure they are accurate.

FICO scores are not the sole factor in deciding who to lend to and who not to lend to and shouldn't be used as such.