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Consumer Credit Scores are Artificially Inflated

Your FICO® Scores can impact your loan interest rates, terms, approvals and more.
Frequent Contributor

Consumer Credit Scores are Artificially Inflated

  • Same score is a higher risk than a decade ago: Moody’s
  • Goldman sees ‘grade inflation’ contributing to missed payments

“Borrowers’ scores may have migrated up, but inherently their individual risk, and their attitude towards credit and ability to pay their bills, has stayed the same.” deRitis [deputy chief economist at Moody’s Analytics] said. “You might have thought 700 was a good score, but now it’s just average.”

 

Inflated Credit Scores Leave Investors in the Dark on Real Risks

27 FICO Scores + 3 VS3. MTG (Mortgage), AUT (Auto), and BKC (Bankcard) are scores 5,4, and 2 from the top.
Message 1 of 11
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Established Contributor

Re: Consumer Credit Scores are Artificially Inflated

I read this earlier. Thanks!
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Message 2 of 11
Community Leader
Senior Contributor

Re: Consumer Credit Scores are Artificially Inflated

Thanks for sharing the article.

I wasn’t shocked to read that auto loan payments were being missed. When you consider car notes are between $500-1200/month, it’s no wonder.

And now it makes sense that the online SCT have started doing HPs vs SPs. It was just too easy for consumers to wrack up debt for overpriced items.
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Message 3 of 11
Valued Contributor

Article "inflated Credit Scores"

https://www.bloomberg.com/news/articles/2019-04-07/inflated-credit-scores-leave-investors-in-the-dar...

 

Interesting read.

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Message 4 of 11
Moderator Emeritus

Re: Article "inflated Credit Scores"

Great read! Got my violin out for the lenders and investors who took on the riskier profiles and explotied them for the extra dollars and are now whinning! Surely in today's world with all the various resources available to them (lenders) they can certainly find a risk model that gives then the "risk tolerance" they desire! Smiley Mad

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Message 5 of 11
Valued Contributor

Re: Article "inflated Credit Scores"


@Dinosaur wrote:

Great read! Got my violin out for the lenders and investors who took on the riskier profiles and explotied them for the extra dollars and are now whinning! Surely in today's world with all the various resources available to them (lenders) they can certainly find a risk model that gives then the "risk tolerance" they desire! Smiley Mad


LOL!

 

I do think most major lenders developed their own model to mitigate risk so I dont think its a total doom and gloom situation.

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FICO 08: (5.16.19) EX: 792 / EQ: 822 / TU: 800
Message 6 of 11
Super Contributor

Re: Consumer Credit Scores are Artificially Inflated

I think the story is misleading.

 

As a former credit zero, my credit scores went up not because of changes in the FICO scoring method but I changed my method of using credit.  I use far less of it then I used to.  Since FICO doesn't track credit use over time, people could have done like I did and reduced their credit use, got a higher paying job or other factors.  Also many people who have high FICO scores could have no savings so if they lost their job or got sick they could default on loans which has nothing to do with FICO scores or even DTI.

 

I am not a fan of using income and amount owed to factor into credit scores but $1 is probably eaiser to pay on job loss then 10k is .  I'm less of a risk not because I have high FICO scores but I have no CC debt and savings.

 

04/24/2019: FICO 849 EQ 845 TU 848 EX
Message 7 of 11
Valued Member

Re: Consumer Credit Scores are Artificially Inflated


@marty56 wrote:

I think the story is misleading.

 

As a former credit zero, my credit scores went up not because of changes in the FICO scoring method but I changed my method of using credit.  I use far less of it then I used to.  Since FICO doesn't track credit use over time, people could have done like I did and reduced their credit use, got a higher paying job or other factors.  Also many people who have high FICO scores could have no savings so if they lost their job or got sick they could default on loans which has nothing to do with FICO scores or even DTI.

 

I am not a fan of using income and amount owed to factor into credit scores but $1 is probably eaiser to pay on job loss then 10k is .  I'm less of a risk not because I have high FICO scores but I have no CC debt and savings.

 


I agree, We need a credit reform.  The 30 percent rule does not measure credit risk. If someone has a lower credit line, 30 percent rule is just asking for trouble. Instead of using income and amount owed, increasing payment history percentage to have higher impact to credit score.  Remove inquries percentage/impact points on credit score as well.  Inquries just means a person is requesting credit. We should not be penalized for just asking credit. I do not agree with the article about inflating credit scores. 

Message 8 of 11
Community Leader
Senior Contributor

Re: Consumer Credit Scores are Artificially Inflated

Yeah, I read the article and thought it was a bunch on nonsense. The economy is good, more people are working and making better income - what's "artificial" about that?

And this:

 

"Borrowers’ scores may have migrated up, but inherently their individual risk, and their attitude towards credit and ability to pay their bills, has stayed the same.” deRitis [deputy chief economist at Moody’s Analytics] said"

- You're only looking at data - income, debt & payment history - how do you know what people's "attitude" is??? You don't. And how do you know their ability to pay their bills? Do you know their bank account balances? No, you don't.


Fico 08: 720/721/719 TU/EX/EQ
Message 9 of 11
Highlighted
Moderator Emeritus

Re: Consumer Credit Scores are Artificially Inflated


@yankees992012 wrote:

@marty56 wrote:

I think the story is misleading.

 

As a former credit zero, my credit scores went up not because of changes in the FICO scoring method but I changed my method of using credit.  I use far less of it then I used to.  Since FICO doesn't track credit use over time, people could have done like I did and reduced their credit use, got a higher paying job or other factors.  Also many people who have high FICO scores could have no savings so if they lost their job or got sick they could default on loans which has nothing to do with FICO scores or even DTI.

 

I am not a fan of using income and amount owed to factor into credit scores but $1 is probably eaiser to pay on job loss then 10k is .  I'm less of a risk not because I have high FICO scores but I have no CC debt and savings.

 


I agree, We need a credit reform.  The 30 percent rule does not measure credit risk. If someone has a lower credit line, 30 percent rule is just asking for trouble. Instead of using income and amount owed, increasing payment history percentage to have higher impact to credit score.  Remove inquries percentage/impact points on credit score as well.  Inquries just means a person is requesting credit. We should not be penalized for just asking credit. I do not agree with the article about inflating credit scores. 


Honestly how is seeking additional credit less or equally risky as a stable borrower who isn't seeking more?

 

I don't see it from a data analytics perspective; totally on board with switching the percentage metric which is somewhat laughable for many reasons in today's credit market, and there are plenty of other things which suck (like CFA's) but inquiries I can't see a problem with it.




        
Message 10 of 11