FICO 2008: Better, But Not Good Enough

[Anonymous]

I must be honest FICO is what FICO is. One thing FICO isn't is a good basis for assessing a persons ability to repay a loan. The real problem is with the lenders, who are too lazy to do due diligence themselves. In the days before FICO, a person developed a relationship with a credit provider, building credit with timely payments. Now, everything hinges on a arbitrary number that is not necessarily reflective a person's lifestyle or income stream.

Thank God I have a long standing relationship with a great credit union who understands my unique situation. They are always appalled when the pull my score, because it doesn't reflect what's on my credit report or my history.

I'm a service connected, disabled vet, a paraplegic, and FICO just doesn't fit people like me. I'm probably in the top 2% of the US in creditworthiness because my income is guaranteed by the government for life. Not many can say that in this day & age.

[haulingthescoreup]

First of all, as an employee of the VA, let me thank you for your service. I am honored to be able to do my bit for veterans like you.

It is very true that any decision to extend credit needs to be based on a lot more than a FICO score. Laziness (and greed) by lenders caused a lot of our current economic problems.

But I do need to point out that having a cast-iron source of income doesn't necessarily make one credit-worthy. We have a lot of members here with breath-taking incomes who are way over-extended in credit and can't pay their bills, and others with small and/or variable income who are scrupulous about staying on top of their debts, and who never borrow money that they couldn't immediately repay if necessary. It is, as you say, that knowledge of you, your circumstances, your credit history, and your character that should affect lending decisions.

And yours is a wonderful testimonial to the virtues of credit unions, especially local credit unions.

As a veteran, I hope that you are also aware of the current membership eligibility categories for USAA, PenFed, and Navy FCU.

Thanks for posting!

[Anonymous]

Byrdman,

                 Far be it from me to tell anyone how to handle their bootstraps!   As far as my parents went, like yours, they hardly ever talked about finances with their kids either--except to tell me to put my loose change in the bank so it could earn interest---yeah, thanks, Dad! There went all my silver coins from my paper route!

But getting back to the general issue of Fico 08 and AU's....I think it's fair to say that people lacking a well established cosigner will have to do the heavy lifting on their own to qualify for similar scores that more fortunate people will simply have handed to them easier and sooner. Please don't take it like I'm singling out the Byrdman family. I'm just making a general observation.

In this, I see basic unfairness in that there's no evidence that AUs have any more inherent creditworthiness than people who have to make it on their own.They simply have the confidence of their guarantors--who, like yourself, may be biased for reasons of sentiment and family ties--something that never blinds most bankers I've ever met.

But hey, life is unfair. So I'm not crying about it. I'm simply questioning the integrity of the Fico Scoring system if people are being handed higher scores which they truly didn't earn. Some of these people may not be ready for the higher credit limits they so easily qualify for.

And I do think that innocent and creditworthy people are currently suffering cancelled or reduced credit lines from the unwise actions of more reckless people that have way over-extended themselves. I hear countless stories of people that did everything right and still their scores took a dive as their cards' credit limits chase down their balances while their utilization rates rocket up in a vicious cycle.

So, I guess my biggest beef with AUs is that Fico supposedly has a mission to assess credit histories based on steely-eyed and objective factors that specifically do not consider a person's family, social status, age, sex, religion, or politics. etc. etc...... AUs tend to muddy the waters in that regard.

However, you've convinced me that spouses certainly should be granted AU status since husbands and wives can be held jointly liable for debts accumulated, anyway. They might as well share in the benefits as well as the liabilities of good credit.

But if Fico takes into consideration those people whose tradelines are entirely AUs handed them by benefactors, and awards more points to those who are not AUs or have their own personal tradelines mixed with an occassional AU, I think that would maintain the system's integrity while still allowing parents to give their kids a boost up in life.

As it is, the system is pretty fair to anyone who can demonstrate a minimum 7 years of responsible use of credit using objective criteria, like their payment history.

Question: Am I a better credit risk just because my Dad hasn't missed a payment in 50 years?  Probably to him, I am. But if I could take my father's love to the bank I wouldn't need a dime in credit...ever.

Regards,

Cato

Message Edited by cato on 03-31-2009 03:23 PM

[Anonymous]

PGSPARX

allowing your kid to be an AU so they can get a better rate on a car loan is hardly doing away with the pulling yourself us by your own bootstraps mentality.

buying them the car and not making them work for it is.

Sure, I would agree with that...But if those same kids and their peers default en masse on their mortagages down the road we end up with a banking system on the brink of collapse. Meanwhile, Joe Lunchbucket gets his credit lines reduced and gets caught in the crossfire even if he never missed a payment and chooses to rent his home.

My point is, there should be some consideration for AUs in the Fico system....But I personally don't think they should trump the scores of people who built their credit the old fashioned way---by their bootstraps. Otherwise, we're disproportionately rewarding the wrong kind of behavior.

Hey, if all you have to do to get good Fico Scores  and a skyhigh credit limit is simply ask your parents

why would anybody patiently jump through all the hoops that the credit bureaus insist upon?

And what faith could bankers place in high Fico Scores if the whole game is so easily rigged?

Regards,

Cato

[Junejer]

Any banker that underwrites ANYTHING solely on the strength of a FICO score is a fool, who gets what he deserves. I don't care what the credit instrument is, there are other factors involved, and it would behoove banks to start exploring those factors on a regular basis and quit being lazy and focusing on FICO only.

Heck, there are people with great scores that aren't ready for the CLs that they get.

[Anonymous]

Byrdman,

Heck, there are people with great scores that aren't ready for the CLs that they get.

You got that right!  And up until last spring, I was getting unsolicited 5000 dollar convenience checks in the mail from credit card companies I had never done business with before.  All I had to do was cash it and I had an active account with them and a spanking new credit card on the way.

I'd sure like to know how much taxpayer bailout money these clowns are on the hook to all of us for right about now.

Regards,

Cato

[Junejer]

Yep. I used to get cards in the mail, unsolicited. These cards would routinely have $50,000+ CLs. This of course, was six to seven years ago. Haven't had that happen to me in quite some time now.

[Anonymous]

So who's the better risk; the little old lady on  low fixed income and score in 800s or the hotshot making 100,000 and score in the 600-700 range.  Do you think salary should be linked to the score? 

[laz98]

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@Anonymous wrote:
So who's the better risk; the little old lady on  low fixed income and score in 800s or the hotshot making 100,000 and score in the 600-700 range.  Do you think salary should be linked to the score? 

---

probably the little old lady who knows she has a limited amount of money to spend, & not very many options for increasing that income, versus the hot shot who figures he can blow as much as he likes because he makes a ton of cash.  til he loses his job unexpectedly.

no, i don't think salary should be linked to score.  like others have said, just because you make a lot of money doesn't mean you know how to handle it.  there's no correlation between having a huge salary & being financially responsible, or vice versa.  it is really up to the individual.

[Junejer]

Interesting question, Annie. From a pure credit risk standpoint, I would say the L.O.L. is the better credit risk. However, from a banking standpoint, I would probably rather lend to the "hotshot" with mid range scores. Why? He has more upside and will want to borrow more money in the future. As a bank, I stand to make more profit off of him than off of the L.O.L. Just one (former) banker's opinion.