@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:@Anonymous
FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:
1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before
How is this not logical?
"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".
@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.
1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.
2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.
3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.
to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.
No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.
"No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
This is not true. On October 14th I had a 830 FICO score from Experian and I had MORE debt. On October 15th I had a 774 FICO (-56 pts.) score with less debt.
@Anonymous: "Score is only one component of determining creditworthiness." --Not exactly true. Some lenders base their APR solely on credit score.
Mr. @Anonymous : You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)
I think that you work for FICO or my FICO, no? You seem to adamant that FICO scores/algorithms are perfect...
-Jim
@Anonymous no sir, I do not work for or have any affiliation other than a subscription to MF or FICO. I'm just a regular Joe here trying to figure it out and help people that's all, but thank you for that, I did get a good laugh. 😉
maybe I should've better qualified that statement, let me try again:
"No, a person with more debt per type is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
they want to see revolving and installment activity.The reason for the difference is you had no installment activity. So therefore you weren't awarded points for having at least one dollar owed and being paid in installment debt. Yes you were higher because you had a almost paid off mortgage.
what lenders base APR solely on score? because before you can even get to that stage, you have to qualify in many other areas. Those first tests, you're dismissing, but they are necessary to come to that point. But that wasn't my point. The scores evaluate the probability of repayment, they do not evaluate all the other factors that you list. Creditworthiness comprises more than scores and even if scores do dictate APR's, that still does not determine creditworthiness alone.
of course I would lend to the friend with a better history, not to the one who had the bad payment history, and your better payment history gives you a better score, I might add.
no I absolutely think the scores are far from perfect, along with the processes to determine them; however I'm not really here to judge. My opinion of whether or not they're good or bad is irrelevant. I'm simply here to understand how they work. I could suggest many improvements and changes, but I'm not the one who designs them. I'm just a consumer, so I just want to understand how they work.
BM
Since there's a debate raging here over the logic or illogic behind the no-open-loan and no-revolving-balance penalties, and some of us are actually trying to justify those penalties, I just want to weigh in and say that I find them to be completely illogical, and that there is no justification for them (if the professed goal of the scores were the stated goal, namely risk avoidance).
Even the FICO insiders couldn't justify them other than to claim -- without substantiation -- that "the data" shows "slightly less risk" with low balance profiles than with zero balance profiles.
I have heard before all of the justifications being proffered in this thread, and not a single one of them stands up to the slightest scrutiny. Your credit report shows many many years of your credit experience, and no one would look at the presence of current balances to determine that you have an excellent track record in timely repayment.
Even if it were true, which I seriously doubt, that you'd suddenly become "slightly" more risky by paying off all of your debts, that might translate to 5 or 10 points, perhaps, but not to 56 points.
My theory is that there is an ulterior motive for the penalties, and that while the scores are principally about risk, they are also about reward. People who like to be debt free are less likely to be profitable to the lenders who are FICO's actual customers.
@Anonymous wrote:
@SouthJamaica wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:@Anonymous
FICO scores relate to credit WORTHINESS. Logic would still dictate that I am a better risk now that I paid off the note:
1. Proves I pay my debts
2. I have a large asset for a second mortgage now [ at a higher rate :- ( ]
3. I have disposable income that I did not have before
How is this not logical?
"It's very common knowledge in credit education circles that paying off your only installment loan causes a significant score drop. Had you inquired here, many people could've warned you" --However true this may be, is it logical? A person with more debt is a good credit risk? I am no longer looking to keep my credit score up. That point is moot for me. I am trying to change the way the system works, not "play the game".
@Anonymous Logic does not dictate how credit scores work, statistics and past data do. However it's very logical that if you have less monthly obligations, you are more likely to receive a greater amount of credit which makes you a higher risk.
1. you are still being rewarded for that paid off mortgage, just not as much as you were when it was almost paid off.
2. If you have no existing mortgage, it would be a first mortgage. (yes it would be the second on your credit report.) Assets are not considered in credit scores, neither is wealth or income, it would be discriminatory according to law, so they're not allowed to.
3. again income is not lawfully allowed to be considered in a credit score. It will be considered by a lender when you make an application.
to me it's very logical because it's a point in time algorithm and it cannot assess your ability to reliably pay a monthly amount if you don't currently have one due and being paid.
No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity.
"No, a person with more debt is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
This is not true. On October 14th I had a 830 FICO score from Experian and I had MORE debt. On October 15th I had a 774 FICO (-56 pts.) score with less debt.
@Anonymous: "Score is only one component of determining creditworthiness." --Not exactly true. Some lenders base their APR solely on credit score.
Mr. @Anonymous : You have two friends (suprisingly). One you loaned $1000 and has yet to pay you back, and another friend that has paid you back. (with interest) Which friend would you loan money to again if asked? (Which would get the lower APR?)
I think that you work for FICO or my FICO, no? You seem to adamant that FICO scores/algorithms are perfect...
-Jim
@Anonymous no sir, I do not work for or have any affiliation other than a subscription to MF or FICO. I'm just a regular Joe here trying to figure it out and help people that's all, but thank you for that, I did get a good laugh. 😉
maybe I should've better qualified that statement, let me try again:
"No, a person with more debt per type is a higher risk and has a lesser score. They have to see some activity, that doesn't mean you have to have a high level of debt. One dollar is enough to show activity. "
they want to see revolving and installment activity.The reason for the difference is you had no installment activity. So therefore you weren't awarded points for having at least one dollar owed and being paid in installment debt. Yes you were higher because you had a almost paid off mortgage.
what lenders base APR solely on score? because before you can even get to that stage, you have to qualify in many other areas. Those first tests, you're dismissing, but they are necessary to come to that point. But that wasn't my point. The scores evaluate the probability of repayment, they do not evaluate all the other factors that you list. Creditworthiness comprises more than scores and even if scores do dictate APR's, that still does not determine creditworthiness alone.
of course I would lend to the friend with a better history, not to the one who had the bad payment history, and your better payment history gives you a better score, I might add.
no I absolutely think the scores are far from perfect, along with the processes to determine them; however I'm not really here to judge. My opinion of whether or not they're good or bad is irrelevant. I'm simply here to understand how they work. I could suggest many improvements and changes, but I'm not the one who designs them. I'm just a consumer, so I just want to understand how they work.
BM
Since there's a debate raging here over the logic or illogic behind the no-open-loan and no-revolving-balance penalties, and some of us are actually trying to justify those penalties, I just want to weigh in and say that I find them to be completely illogical, and that there is no justification for them (if the professed goal of the scores were the stated goal, namely risk avoidance).
Even the FICO insiders couldn't justify them other than to claim -- without substantiation -- that "the data" shows "slightly less risk" with low balance profiles than with zero balance profiles.
I have heard before all of the justifications being proffered in this thread, and not a single one of them stands up to the slightest scrutiny. Your credit report shows many many years of your credit experience, and no one would look at the presence of current balances to determine that you have an excellent track record in timely repayment.
Even if it were true, which I seriously doubt, that you'd suddenly become "slightly" more risky by paying off all of your debts, that might translate to 5 or 10 points, perhaps, but not to 56 points.
My theory is that there is an ulterior motive for the penalties, and that while the scores are principally about risk, they are also about reward. People who like to be debt free are less likely to be profitable to the lenders who are FICO's actual customers.
@SouthJamaica Respectfully, how else could it be justified by anything but data and statistics? If you were fico and data showed higher risk with $0 balance, you would defy factual data and reward for it? That would hurt faith in your algorithm and make it less predictable and reliable.
There are many statistics that don't seem to make sense, but they are factual. The reasoning why the statistic is what it is, is opinion of course.
One note, Payment History is not at issue here. That's where many confuse the score change. It had nothing to do with payment history. Full points are awarded for that category absent a past derogatory.
The score change discussed here derives from the Amounts Owed category, so past balances and utilization are irrelevant as it is a point in time algorithm. As stated, that'll change with trended data. Payment History is irrelevant too, as that's considered separately in its own category.
Payment History is for historical payment activity; Amounts Owed is for current management of debt. History rewards you for history (past mortgage loans); Amount Owed rewards you for current management (open mortgage loan). Why is it illogical to consider past and present separately?
So if you don't have current revolving and loan balances and utilization, you aren't awarded points for current (meaning now, not previously) revolving and loan credit management.
Past is a great predictor, but its not absolute, as things change. Are they wrong for assessing one's present management separately?
jmho.
They are certainly wrong for treating a person who has paid all of his/her debts less favorably than someone who has not paid all of his/her debts. Yes they are wrong. Dead wrong.
I am sure you know that someone who has had an extensive credit history and has paid off everything is at least as creditworthy as someone who still owes money.
In your haste to defend this anomaly in the algorithm you are attributing some kind of reasoning to it that makes no sense and even the FICO insiders (except for one who gave an absurd analogy) did not proffer. To say that failing to pay off one's debt shows "management" skill superior to paying off one's debt is not rational. Sorry.
Nor do you offer any explanation as to how the alleged "slight" difference proved by the "data" could translate to the 50-60 points that most people get hammered.