Inequities in the FICO system

[Anonymous]

The FICO system is a little backwards in my mind for so many reasons. One little thing in particular that really bugs me is the fact that rental companies, utilities and cell phone companies pull credit when you open an account and report to the bureaus if you don't pay them, but if you do pay them on time on a regular basis you get nothing.

To be clear, I fully think anyone who doesn't pay their bills should face the consequences but I also think that if you do pay on time, you should get credit for it as well.

[Shogun]

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@hwturner17 wrote:

The FICO system is a little backwards in my mind for so many reasons. One little thing in particular that really bugs me is the fact that rental companies, utilities and cell phone companies pull credit when you open an account and report to the bureaus if you don't pay them, but if you do pay them on time on a regular basis you get nothing.

To be clear, I fully think anyone who doesn't pay their bills should face the consequences but I also think that if you do pay on time, you should get credit for it as well.

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Actually you do get credit for it.  By not having a derog posted to your CR because of it.  It's like driving down the highway, if you're speeding, you'll get pulled over and fined.  If you're not speeding, you don't get pulled over and congratulated.  They paying of all those bills is what is expected, so anything out of the norm may reap a negative.

[Anonymous]

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@Shogun wrote:

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@hwturner17 wrote:

The FICO system is a little backwards in my mind for so many reasons. One little thing in particular that really bugs me is the fact that rental companies, utilities and cell phone companies pull credit when you open an account and report to the bureaus if you don't pay them, but if you do pay them on time on a regular basis you get nothing.

To be clear, I fully think anyone who doesn't pay their bills should face the consequences but I also think that if you do pay on time, you should get credit for it as well.

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Actually you do get credit for it.  By not having a derog posted to your CR because of it.  It's like driving down the highway, if you're speeding, you'll get pulled over and fined.  If you're not speeding, you don't get pulled over and congratulated.  They paying of all those bills is what is expected, so anything out of the norm may reap a negative.

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I don't think an absence of credit for something should be considered credit. It has to do more with the fact that if people don't use credit cards or take out loans and DO pay their utilities, rent and cell phone on time, they are still screwed when it comes to a score. It doesn't go into the equation unless you don't pay, therefore it's not credit if you pay on time. If you pay your credit card on time, you get a good payment. That is what it should be for everything if they can report you for paying late in my opinion.

So if someone doesn't need credit in their life because they make good decisions or don't believe in using credit cards or loans for small purchases or keeping up with the system and want to buy a house down the road, what are they to do? They are forced to get a credit card or a loan to prove they are responsible with debt when in fact, they have already been showing that they are responsible by paying their rent and utilities.

Again, I completely disagree that by not getting a baddie, you are getting some sort of credit. That's backwards. I get your example and that's fine, but in the same FICO system, you get a positive payment for another type of debt. It's inconsistent. Don't put the amount of on time payments in the equation if you aren't going to include every account that can be reported against you if you do not end up paying on time.

The system is set up to make you aquire a credit card or loan and that shouldn't be a pre requisite to get a good rate on a loan down the road when there are so many other ways to determine if someone can repay on time.

[myjourney]

So why do you fell the Inequities are in the Fico system?

Fico has noting to do with when and if your creditors report or if they even do.

The only requirement is that if they do report that it be correct and accurate information.

Your analogy seems to rest with the people who aren't reporting such as utilities and rental companies.

Those companies are just using the Fico system to determine if they'll get paid.

To establish risk and in most cases what their looking for is utilities and rent payments not paid before.

In all reality I don't think they care about scores but what's on your CR's as far as unpaid things that would affect their operation/industry.

Fico was setup for lenders risk type things such as loans, CC's, mortgages, cars.....(borrowing money) 

Your using a service IMHO when it comes to utilities, cell phones, rentals etc etc and not necessarily borrowing money.

Example if you don't pay the electric bill that would cause a problem when they had to transfer the unit into their name to get the unit ready for the next tenant.

Last landlord shows as a collection

Unpaid utilities can cause problems because now they have to go show a lease or ownership that the previous tenant no longer lives there.

Finally reporting to the CB's isn't free and unless it's included in your rent or utility bill which is high enough anyway the average consumer wouldn't want that cost passed on. Would you? 

[Anonymous]

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@myjourney wrote:

So why do you fell the Inequities are in the Fico system?

Fico has noting to do with when and if your creditors report or if they even do.

The only requirement is that if they do report that it be correct and accurate information.

Your analogy seems to rest with the people who aren't reporting such as utilities and rental companies.

Those companies are just using the Fico system to determine if they'll get paid.

To establish risk and in most cases what their looking for is utilities and rent payments not paid before.

In all reality I don't think they care about scores but what's on your CR's as far as unpaid things that would affect their operation/industry.

Fico was setup for lenders risk type things such as loans, CC's, mortgages, cars.....(borrowing money) 

Your using a service IMHO when it comes to utilities, cell phones, rentals etc etc and not necessarily borrowing money.

Example if you don't pay the electric bill that would cause a problem when they had to transfer the unit into their name to get the unit ready for the next tenant.

Last landlord shows as a collection

Unpaid utilities can cause problems because now they have to go show a lease or ownership that the previous tenant no longer lives there.

Finally reporting to the CB's isn't free and unless it's included in your rent or utility bill which is high enough anyway the average consumer wouldn't want that cost passed on. Would you? 

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I guess my real issue is that if someone doesn't want/have a credit card and doesn't have a loan, they suffer when they do need a loan, like a mortgage. The FICO system, which is used by almost every lender, requires someone to play the game when in reality, the lenders can determine if you are credit worthy in other ways which are readily available.

[JediNeo]

Do you really want all those companies messing with your credit report? As MJ stated you are not borrowing money with rent, utilities and cell you are obtaining a service. On the flip side, if you have no credit history don't they (utilities/cell) require one to place a deposit? Since they cannot verify your payment history. 

[Anonymous]

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@JediNeo wrote:

Do you really want all those companies messing with your credit report? As MJ stated you are not borrowing money with rent, utilities and cell you are obtaining a service. On the flip side, if you have no credit history don't they (utilities/cell) require one to place a deposit? Since they cannot verify your payment history. 

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I have no more of an issue letting a utility company etc mess with my credit report to report me paying on time than I would any credit card company. Again, my issue is that if you can be negatively reported by these people (which I agree with), you should get a positive mark as well. I don't like the "No mark is a good mark" because it's not. If you pay on time, you don't exist in the FICO system. You have to have a debt account.

[DaveSignal]

• Although I can understand the frustration of people with no credit history, I don't think that paying a monthly utility bill is a good representation of someone's ability to manage and effectively utilize large lines of credit.  It is a unique discipline.  I could say that I am probably a fantastic guitar player, but if I have never actually played a guitar before and have only previously fiddled with my kazoo, not many major stadiums are going to hire me for a guitar playing concert.... even though its possible that i could be a natural pro the first time I use the instrument.
• There are some great guidelines on these forums for building a great credit history in a few years. It is easier and faster than rebuilding from collections and major derogs, another feat that has been accomplished by many at myFICO, especially if you have the money to put down for some secured loans.  OP, You can do it! 

[Shogun]

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@hwturner17 wrote:

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@Shogun wrote:

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@hwturner17 wrote:

The FICO system is a little backwards in my mind for so many reasons. One little thing in particular that really bugs me is the fact that rental companies, utilities and cell phone companies pull credit when you open an account and report to the bureaus if you don't pay them, but if you do pay them on time on a regular basis you get nothing.

To be clear, I fully think anyone who doesn't pay their bills should face the consequences but I also think that if you do pay on time, you should get credit for it as well.

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Actually you do get credit for it.  By not having a derog posted to your CR because of it.  It's like driving down the highway, if you're speeding, you'll get pulled over and fined.  If you're not speeding, you don't get pulled over and congratulated.  They paying of all those bills is what is expected, so anything out of the norm may reap a negative.

---

I don't think an absence of credit for something should be considered credit. It has to do more with the fact that if people don't use credit cards or take out loans and DO pay their utilities, rent and cell phone on time, they are still screwed when it comes to a score. It doesn't go into the equation unless you don't pay, therefore it's not credit if you pay on time. If you pay your credit card on time, you get a good payment. That is what it should be for everything if they can report you for paying late in my opinion.

So if someone doesn't need credit in their life because they make good decisions or don't believe in using credit cards or loans for small purchases or keeping up with the system and want to buy a house down the road, what are they to do? They are forced to get a credit card or a loan to prove they are responsible with debt when in fact, they have already been showing that they are responsible by paying their rent and utilities.

Again, I completely disagree that by not getting a baddie, you are getting some sort of credit. That's backwards. I get your example and that's fine, but in the same FICO system, you get a positive payment for another type of debt. It's inconsistent. Don't put the amount of on time payments in the equation if you aren't going to include every account that can be reported against you if you do not end up paying on time.

The system is set up to make you aquire a credit card or loan and that shouldn't be a pre requisite to get a good rate on a loan down the road when there are so many other ways to determine if someone can repay on time.

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Maybe this will help explain it a little better because you are not credited for those accounts the way you think you are.  You are not given credit for paying your CCs and loans on time.  You can pay them 100 times right, and you will get credit for the account, the age of the account and for the useage of util.  However you will not get anything for paying on time, because that is what is expected.  Pay on a mortgage for 15 years then get a 30 day late.  See what happens.

Also with utilities, etc.  There is no credit per se.  There is a bill, but no credit.  It's not like they are giving you $10,000 worth of goods and you must manage the util and keep that paid down, or have access to it.  It's a bill.  Same as your grocery bill.  If you don't need credit, then you wouldn't have to worry about it.  But just because you pay a water or phone bill doesn't give the creditors any idea how you can handle a larger loan, or access to a CL.

[takeshi74]

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@hwturner17 wrote:

So if someone doesn't need credit in their life because they make good decisions or don't believe in using credit cards or loans for small purchases or keeping up with the system and want to buy a house down the road, what are they to do?

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The same thing every other home buyer does.  Everyone has to deal with the same playing field.  Everyone has to prove repsonsbility with using credit.

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@hwturner17 wrote:

It's inconsistent.

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Why would you expect it to be consistent?  FICO doesn't treat all reported credit consistently as it is.  You're assuming that if credit reports tracked utilities and such that they would be scored the same way as revolving credit.  I highly doubt that would be the case given their current models.

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@hwturner17 wrote:

The system is set up to make you aquire a credit card or loan and that shouldn't be a pre requisite to get a good rate on a loan down the road when there are so many other ways to determine if someone can repay on time.

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As pointed out above, utilities and rent aren't the same as credit cards and installment loans.  Even if they were factored in they wouldn't receive much weight given their nature.  Again, the system is what it is and everyone has to deal with it.  If one wants credit to buy a home, car, etc then one need to do one's own due diligence.