FICO doesn't understand the credit card game

[Anonymous]

Not sure if this has been mentioned yet (I didn't have time to read all the posts).

Fico and the 3 major credit companies only get information from your credit card once a month when your statement is issued.  If you have $20,000 balance on your statement, pay-it-in-full, then charge another $20,000 before the next statement, this balance is reported the next month.  This makes it appear that you have not paid the balance.  Even if the balance is one another card it still shows that you have roughly the same balance each month.

I know that this doesn't really answer your question about why they don't change their system.

One thing to keep in mind though is that it would be next to impossible for the credit cards to report your every transaction or to even to report a daily/weekly balance. Also, reporting your daily balance or transactions would probably violate some privacy issues.  So the once a month balance reporting is really the only way that your card usage can be reported.

The best to avoid this type of negative reporting is to pay the balance off before the statement is issued each month.

[Anonymous]

Another thing that I wanted to reply to in general is people commenting on Fico and credit cards basing your score on "putting money into the credit companies pockets".  Your Fico and other credit scores have nothing to do with how much interest or penalties that you pay.

I, like just_curious, pay my credit card each month and have not paid a dime in interest for the last three years, yet my score is in the high 700's.  The only thing stopping me from being higher is that I do always have balances at the statement date. 

Again I point out that the only information credit reporting companies receive from your cards is if your minimum payment was on time (and not the amount of said payment) and your statement balances.  Anything that happens between statements (interest charges, payments and purchases) is not reported.

[just_curious]

And the OP rejoins the thread.

I am glad to hear from others who agree that FICO has a problem here....

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Score_Watcher wrote:

Again I point out that the only information credit reporting companies receive from your cards is if your minimum payment was on time (and not the amount of said payment) and your statement balances.  Anything that happens between statements (interest charges, payments and purchases) is not reported.

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Which is exactly the point.  Why can't Fair Issac simply request the info on interest charges and late fees from the CCCs and factor that into the analysis?  If they did, they would know that, with no interest and no fees, the balance must have been PIF, so they could better understand the way many of us use our CCs in today's world - to capture rewards.  If you don't, you are basically subsidizing those of us who do...so, "Thank You".

Rewards programs are very meaningful - I have had many great family trips in business or first class, stay in suits in Starwood hotels (Westin, St. Regis, W, and so on) everywhere, and get significant cash back on Amex Blue.  But to "satisfy FICO" I need to pay my balances BEFORE they are even officially posted..????   That is STUPID - period.

Here are the facts..............................

I have credit lines totaling well over $200K on my CCs, plus two more without limits.  Many open 15+ years, one well over 30.

I pay every card, every month well before the due date, no matter what the amount owed (and it is never a strain on the checking account).

I paid off my mortgage in full years ago, bought my second home with cash, and pay cash for all major purchases - art, cars, etc. (unless I can charge them and earn more miles/rebates).

But, to get the appropriate FICO score I need to pay five or six days earlier that the monthly CLOSING date to "trick" the utilization factor ????? - just plain stupid.  And I should open an installment loan I don't need???  Also ridiculous......

Fair Issac could fix this.  Instead, under the new FICO 2008 version, my "failure" to have installment loans or a mortgage will probably actually REDUCE my score.  Again - just plain STUPID.

FICO scoring is simply WRONG......

They should get their heads out of the sand and FIX IT.

[Anonymous]

I agree with you 100 % and I think  it could  be fixed.Why couldn' t  they report balance on  due date.I ,like you charge large amounts many times and always pif.I dont feel my score fairly represents my risk to a creditor,and afterall that is what Fico is supposed to do.

[Anonymous]

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lightnin67 wrote:

I agree with you 100 % and I think  it could  be fixed.Why couldn' t  they report balance on  due date.I ,like you charge large amounts many times and always pif.I dont feel my score fairly represents my risk to a creditor,and afterall that is what Fico is supposed to do.

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Don't blame Fair Isaac.  It's the credit card companies, mortgage lenders, car finance companies, etc. who decide when in the billing cycle they will report your balance to the CRAs.  The FICO score can use only the data that is available to it on your reports.

[just_curious]

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masdeocho wrote:

Don't blame Fair Isaac.  It's the credit card companies, mortgage lenders, car finance companies, etc. who decide when in the billing cycle they will report your balance to the CRAs.  The FICO score can use only the data that is available to it on your reports.

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WRONG (with respect).....................................

Fair Issac is exactly who we should blame.  All they have to do is ask for the interest and late fees charged (which the CCCs would be happy to provide).  They would then know when accounts are PIF and could fix their system appropriately.  The resulting scoring would be better - period.

[Anonymous]

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just_curious wrote:

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masdeocho wrote:

Don't blame Fair Isaac.  It's the credit card companies, mortgage lenders, car finance companies, etc. who decide when in the billing cycle they will report your balance to the CRAs.  The FICO score can use only the data that is available to it on your reports.

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WRONG (with respect).....................................

Fair Issac is exactly who we should blame.  All they have to do is ask for the interest and late fees charged (which the CCCs would be happy to provide).  They would then know when accounts are PIF and could fix their system appropriately.  The resulting scoring would be better - period.

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Fair Isaac is not going to make any changes to its scoring system unless one of 2 things happens:

(a) its customers (lenders, not consumers) demand changes; or

(b) its competition is more successful selling a different score because its customers think it is better at predicting risk than FICO.

At the present time, 90% of the major banks seem to be satisfied with FICO.

I'm not saying Fair Isaac should or shouldn't make any changes ... just pointing out the commercial reality.

[Anonymous]

I agree that the system should be updated based on how the average user actually uses their CCs.

But, I don't think that interest payments should be reported and/or used.  The problem with interest is that depending on the card and when you actually opened the account the interest rates would vary from card to card.

I believe that a better and more straight forward method would be for the CCCs to report minimum and maximum balances on the card for the statement period.  This would show is a person is paying their card in full sometime during the statement cycle.

The current system does not really take into consideration high income individuals that have resources to pay off their cards every month (not that they really need credit if this is the case). If your income is high enough very few companies would deny you credit even if your FICO is in the 600's.  The real issue is that while they would give you credit for a large purchase, you might have to pay higher interest because your score isn't in the "Top Tier".

Personally I am in the "Top Tier" of FICO but by no means have the resources of high income individuals.  For the most part I live pay check to pay check, but a lender would look at my FICO and assume that I am a good risk where in truth if I were to add say a $400 a month car payment I would probably be bankrupt with in a year or so.

Anyway I do agree with that it is not entirely Fair Isaac's issue.  There would have to be a major overhaul in credit industry for Fair Isaac to be able to adjust their score calcs. Unfortunately I think the only way for changes to be made throughout the Industry would be legal action by us, the consumers, or by congress requiring such changes.

[Anonymous]

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Score_Watcher wrote:

Unfortunately I think the only way for changes to be made throughout the Industry would be legal action by us, the consumers, or by congress requiring such changes.

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OK, Congress would be reason (c) for changes by Fair Isaac.  But the banks have extremely strong lobbying power ...

[demi]

A little off topic, but still along the discussion....Mentioned often in this thread is the discussion of income.  No one is suggesting outright that it be included.  What I find interesting, is how many people  on small incomes manage their credit extremely well, while many with large incomes are terrible at it.  Just an observation !  I don't believe its just because those with small incomes don't have the $$$ resources....I have to think that people with smaller incomes have to manage their money better...while those with higher don't have to (or at least think they don't have to) keep such a tight scrutiny on $$$. 

So, someone with a high credit score making $30,000 a year impresses me a lot more than someone making $300,000 with the same score.

Just my 2 cents worth !