2 things that tick me off

[Anonymous]

Here's my beef with the FICO scoring system:

1.  My credit score does not reflect my income.

2.  My credit score is based upon my debt balances at a point in time, ie, doesn't matter if I pay my balance in full each month.

Go figure - last summer I check my FICO and it was 698, even though I had NO DEBT and all bills were paid on time.  After a little digging, I found out that an unused home equity line ($300k) was deemed BAD since it's AVAILABLE credit vs. an actual mortgage.  I also have a personal credit card with a $15k limit that I have run $100k of purchases through in the last 12 month for personal expenditures for points.  I have a personal card that I use ONLY for company purchases that has a $40k limit - have run $1m through that card in the last year.  You can do the calculations and see what the average balances each month would be even though the balances are paid in full each month.

To play the game, I decided to take out a $320 mortgage and invest the proceeds.  I'm debt adverse, but shoot, I will earn the spread.  My credit score went to 761, but I'm still getting zinged 40+ points for the credit cards.   My business partners, who have debt have scores of 800+.  FYI - my income is about $400k.  It's important to me to keep my score high for business reasons. 

Who sees the logic in how these agencies score?  $20k in debt for a person making $50k a year ain't the same as someone making $200k a year.  And they seem to not take into account that one person may be CARRYING $20k and the other is PAYING it off?  It seems to me that a better credit measure would be how much debt you are carrying. 

Just me venting...

Message Edited by psychojr on 04-30-2007 10:43 AM

[Tuscani]

---

psychojr wrote:

Here's my beef with the FICO scoring system:

1.  My credit score does not reflect my income.

2.  My credit score is based upon my debt balances at a point in time, ie, doesn't matter if I pay my balance in full each month.

Go figure - last summer I check my FICO and it was 698, even though I had NO DEBT and all bills were paid on time.  After a little digging, I found out that an unused home equity line ($300k) was deemed BAD since it's AVAILABLE credit vs. an actual mortgage.  I also have a personal credit card with a $15k limit that I have run $100k of purchases through in the last 12 month for personal expenditures for points.  I have a personal card that I use ONLY for company purchases that has a $40k limit - have run $1m through that card in the last year.  You can do the calculations and see what the average balances each month would be even though the balances are paid in full each month.

To play the game, I decided to take out a $320 mortgage and invest the proceeds.  I'm debt adverse, but shoot, I will earn the spread.  My credit score went to 761, but I'm still getting zinged 40+ points for the credit cards.   My business partners, who have debt have scores of 800+.  FYI - my income is about $400k.  It's important to me to keep my score high for business reasons. 

Who sees the logic in how these agencies score?  $20k in debt for a person making $50k a year ain't the same as someone making $200k a year.  And they seem to not take into account that one person may be CARRYING $20k and the other is PAYING it off?  It seems to me that a better credit measure would be how much debt you are carrying. 

Just me venting...

Message Edited by psychojr on 04-30-2007 10:43 AM

---

1. I disagree. You income should have nothing to do with how responsible you are with your debts.

2. Paying in full does matter.. your score is calculated using the balance from your last statement date. Not how much you owe today.

[Anonymous]

All the FICO score measures is the statistical probability of whether you will pay back debt, based on your past performance.  It's a risk predictor and nothing more.

Salary comes into play when you apply for credit.  The lender considers your debt to salary ratio to see if you have enough means to service additional debt.

Message Edited by masdeocho on 04-30-2007 02:00 PM

[Anonymous]

I disagree that you disagree.  Income DOES matter.  A $20k balance that is paid EVERY month is not debt, but is treated equally to someone that carries a $20k balance.  I use my credit cards solely for record keeping and points earned.  $20k to someone earning $400k is chicken scratch and is not equal to someone earning $50k that carries a balance, yet both are treated equally by the credit agencies.  If the score is truely a measure of ability to pay back debt, they have failed miserably here.

[Anonymous]

---

@Anonymous wrote:

I disagree that you disagree. Income DOES matter. A $20k balance that is paid EVERY month is not debt, but is treated equally to someone that carries a $20k balance. I use my credit cards solely for record keeping and points earned. $20k to someone earning $400k is chicken scratch and is not equal to someone earning $50k that carries a balance, yet both are treated equally by the credit agencies. If the score is truely a measure of ability to pay back debt, they have failed miserably here.

---

What you're saying does hold some merit, but consider the following:

1) How would the CRAs known what your income was? Would you want to have to send them your 1040? How else would they get the information?

2) High income doesn't necessarily mean money management skills. Look at Michael Jackson. He was almost as rich as Satan Himself, and now according to most accounts he's near bankruptcy. And more mundane examples abound. With many people, if they make an extra $1, they want to spend an extra $1.12. Coming into more money can be the financial equivalent of four-wheel drive: if you don't know what you're doing, you'll get stuck just like with 2D, only in even more inaccessible places.

[Anonymous]

At a minimum they should look at whether the balance is paid off every month and not just the statement balance.  That information is readily available and indicates responsible credit use.  I agree they wouldn't know my income, but at least don't hold irrelevant data against me.

[Tuscani]

---

psychojr wrote:

At a minimum they should look at whether the balance is paid off every month and not just the statement balance.  That information is readily available and indicates responsible credit use.  I agree they wouldn't know my income, but at least don't hold irrelevant data against me.

---

You got it backwards. Your credit score is based on the balance when the statement is cut, not how much you owe right this minute. If you do not want that balance reported, PIF before the statement is cut.

[Anonymous]

The FICO score does in fact consider whether you pay off your bills each month, i.e. whether there are any late payments.  The bigger factor in this case appears to be your utilization, i.e. if you have credit card limits that total up to say $50K and regularly charge $50K to them, even if you pay them off each month, 100% utilization of your available credit will negatively affect your FICO Score.  As someone said in a prior post, the FICO score is predictive of credit risk, so if you regularly charge as much as you possibly can on your cards, I'd say that's fairly indicative of someone who is riskier than someone who only uses 20% of their available credit.  You personally may not be riskier, but the FICO score isn't looking at you personally.  It's looking at the behavior of folks who have displayed similar debt patterns to you and predicting your credit risk. 

Also, I absolutely don't think income should have any bearing on the score as it's all about how responsible you are in paying your debt.  The Michael Jackson case is a perfect example.

[Anonymous]

It all depends on what day the creditor reports to the CRAs, and what your balance is that day.  It is not necessarily the same date as the statement date.  Call and ask your creditors when they report.  Or if you have a report/score monitoring product, you can figure it out.

[Anonymous]

---

@Anonymous wrote:

It all depends on what day the creditor reports to the CRAs, and what your balance is that day. It is not necessarily the same date as the statement date. Call and ask your creditors when they report. Or if you have a report/score monitoring product, you can figure it out.

---

Tuscani, that's not right, your score is not necessarily based on your balance when your statement is cut. In some cases, that might be true, but not for all Credit cards. I have a HOUSEHOLD BANK card. I'm trying since many month to figure out how they get the numbers they report, first of all the amount reported is always 4-6 weeks old when they day they report it, and it's never the same balance as shown on the statement. I called them to find out on what date they report, but they couldn't tell me. They said it could be any day of the month, whenever they're ready to transfer the numbers to the bureaus. Most other cards report the statement balance shortly after the new statements come out, and if I pay the balance off a day before, then they don't show on my credit report.