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
