@Anonymous wrote:
Let me count the ways where I think the scoring is bogus:
1. It doesn't account for your salary, net worth, or percentage of debt. You better believe that a lender takes these items into consideration.
2. It doesn't account for taking out a zero percent CC loan & putting it to use earning interest. So, if you want to use other people's money to make money, that's a bad thing?
3. It doesn't account for paying off a CC balance every month & getting a 1-3% kick back on purchases. Again, making money by charging, that's bad?
4. It counts the fact that you've had 50 accounts over 40 years, all paid on time. So what? If you get a discount on purchases when you open an account & pay it off, then close it, that's bad?
5. It counts enquiries. What's that got to do with your ability to pay off loans? Absolutely nothing!
6. It doesn't seem to carry forward old non-paid debts after a while. Thus if someone doesn't pay off old debts they are not penalized (e.g., after 7 or ten years). How's that fair to us who haven't ever been late over the same time period (say 10 years plus)?
I have other reasons, but I can't remember them all (having a senior moment)...
Anyone want to chime in?
It is no more bogus then any other statistical measure. There is an excellent correlation between the credit score and the probability to default on a loan. Just like with any other statistics there will be outliers, but if you are in the business of lending money - you care about the law of averages, and using the credit score is an excellent, and cheap tool to select your customers. Yeah, you will miss few - but trying to figure out who, among the funky few are going to be good is not worth your time or money.
