FICO doesn't understand the credit card game

[haulingthescoreup]

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@Anonymous wrote:

FICO does NOT understand modern credit card usage, indeed. I for one do not like cash. I dont like to be short of 5 bucks at the grocery store. I dont like to go to the bank with 5 lb of change to count it and deposit it. What do I do? I charge to the credit card and pay the balance off in full before the due date. Also, I would be STUPID to not pay with department store cards and get 20% or more off on my purchases.

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Well, I know you say that FICO doesn't understand modern credit card usage, but as long as you understand how FICO works, that's all you need.

I for one do not want anything more reported to the CRA's than what already is. One snapshot of my credit usage per month is plenty, thank you. And if they start reporting mid-cycle balances, or whether I PIF'd after the balance was reported, or my average balance over the month, that is just additional opportunities for things to get screwed up. And that means more crap that I have to try to clean up.

[MidnightVoice]

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Confused_About_FICO_Score wrote:

FICO does NOT understand modern credit card usage, indeed.

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If that is true, then as the entire CC industry does not either, as it is based on FICO scores.

I repeat - life is not fair.  One can either moan about the system, or game the system to get what one wants.  I prefer the latter

Message Edited by MidnightVoice on 11-15-2007 06:42 PM

[Anonymous]

I've read this whole thread many times and the only thing I can't understand if that you have good investments, a nice savings, a good income, basically have a good financial life set up why would you worry about a CS?  If you have money to pay off a mortage, to buy a car outright, to rack up thousands of dollars on your CC each month and have the money to PIF then a mid-range to good CS should be the least of your worries because frankly you wouldn't need it.  I don't think people like Bill Gates or Warren Buffet or even new millionaires worry about their CS for personal purchases.  They know they have the money to pay it outright so there's no need for credit for that purchase.

[just_curious]

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hunting_bears wrote:

I've read this whole thread many times and the only thing I can't understand if that you have good investments, a nice savings, a good income, basically have a good financial life set up why would you worry about a CS?  If you have money to pay off a mortage, to buy a car outright, to rack up thousands of dollars on your CC each month and have the money to PIF then a mid-range to good CS should be the least of your worries because frankly you wouldn't need it.  I don't think people like Bill Gates or Warren Buffet or even new millionaires worry about their CS for personal purchases.  They know they have the money to pay it outright so there's no need for credit for that purchase.

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Actually - that's a reasonable question.  My personal scores are very unlikely to impact my life at all.  My various CCs have very high limits ($20,000+) so the issue is really not about me.

Really, my reaction when I saw my FICO scores was almost purely conceptual.  Here's the concern - with FICO scores impacting so much of a person's life these days, it just bothers me that the algorithms are so removed from properly measuring some personal financial situations.  After reading many of the threads here with posters with much more direct knowledge than I, I have come to the conclusion that only if Fair Issac Corp is willing to consider a more sophisticated approach to their analytical model will there be any improvement.

One clear improvement would be to include the aspect of accounts which are PIF each month (no interest charges) which is clearly available, even if Fair Issac chooses to disregard it now.  In fact - if one of the FICO folks who follow this forum cares to respond, I would ask - Why not add that component to the factors you consider?????

There are plenty of ways to "game the system".  You just need to know that before you apply for a credit card, a job, a car loan, a home loan, or whatever.  So -- pay off all but about 5% of the credit limits on all your cards just before the closing dates on your accounts for a month or two and you are likely to have a much higher FICO score than otherwise.  Of course, paying the rest of the balance by the due date is important also, but FICO seems to think that paying three days early is way more important than it really should be.

OK - I am seeking logic where it does not exist...but shouldn't it ???  Any comments from the FICO folks ???

[Anonymous]

You answered yourself- Logic is not applied to FICO scoring.

Understanding FICO® Scoring is an oxymoron

[MidnightVoice]

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just_curious wrote:

One clear improvement would be to include the aspect of accounts which are PIF each month (no interest charges) which is clearly available, even if Fair Issac chooses to disregard it now.  In fact - if one of the FICO folks who follow this forum cares to respond, I would ask - Why not add that component to the factors you consider?????

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I don't think that number is "clearly available" to FICO.  It would mean another reporting figure would have to be added to the mix, and as someone else said, they are pretty good at messing up the ones they have, Lord knows what would happen if they doubled the data.

It must be borne in mind that FICO is a statistical model.  In any such model there will be a number of individuals it does not fit - after all, half of Americans are below average intelligence for example.  This does not invalidate the model - it is still statistically accurate, probably for 95% or more of the people with a score similar to yours.  The odd 5% is why there is a manual review in some cases, and for people who think their score does not truly reflect their credit worthiness, this is the way to go.  But changing a model just because there are a very small number of people it does not fit is not necessarily a good business decision, and in fact, could easily make the model LESS accurate overall.

[Anonymous]

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hunting_bears wrote:

I've read this whole thread many times and the only thing I can't understand if that you have good investments, a nice savings, a good income, basically have a good financial life set up why would you worry about a CS?  If you have money to pay off a mortage, to buy a car outright, to rack up thousands of dollars on your CC each month and have the money to PIF then a mid-range to good CS should be the least of your worries because frankly you wouldn't need it.  I don't think people like Bill Gates or Warren Buffet or even new millionaires worry about their CS for personal purchases.  They know they have the money to pay it outright so there's no need for credit for that purchase.

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I've said this on other threads, so skip this if I am repeating myself repeating myself ...

FICO scores are used for purposes other than credit.  Here's a few examples:

1.  Your auto insurance premium is partially determined by your FICO score.  The actuaries found a correlation between credit scores and number of auto claims filed.  You get charged more if you have a low score.  (I just had an accident last night, so I can hardly wait to see what happens to my premium.    Fortunately my scores increased recently  ).

2.  If you start a new business, you may need capital.  OK, let's pretend you're loaded and can finance it yourself and don't need a loan.  However, depending on the type of business, you may need a license, permit, or bond to operate it.  You may need a good credit score to get that piece of paper or you're SOL (and I don't mean "statute of limitations").

3.  Want to fight terrorism? If you apply for a job that requires a security clearance, the Feds/military are extremely interested in your credit and financial position.  It seems they don't want to reveal State secrets to people who are desperate for cash and could be manipulated by Evil-Doers ...

[Anonymous]

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masdeocho wrote:

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hunting_bears wrote:

I've read this whole thread many times and the only thing I can't understand if that you have good investments, a nice savings, a good income, basically have a good financial life set up why would you worry about a CS?  If you have money to pay off a mortage, to buy a car outright, to rack up thousands of dollars on your CC each month and have the money to PIF then a mid-range to good CS should be the least of your worries because frankly you wouldn't need it.  I don't think people like Bill Gates or Warren Buffet or even new millionaires worry about their CS for personal purchases.  They know they have the money to pay it outright so there's no need for credit for that purchase.

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I've said this on other threads, so skip this if I am repeating myself repeating myself ...

FICO scores are used for purposes other than credit.  Here's a few examples:

1.  Your auto insurance premium is partially determined by your FICO score.  The actuaries found a correlation between credit scores and number of auto claims filed.  You get charged more if you have a low score.  (I just had an accident last night, so I can hardly wait to see what happens to my premium.    Fortunately my scores increased recently  ).

2.  If you start a new business, you may need capital.  OK, let's pretend you're loaded and can finance it yourself and don't need a loan.  However, depending on the type of business, you may need a license, permit, or bond to operate it.  You may need a good credit score to get that piece of paper or you're SOL (and I don't mean "statute of limitations").

3.  Want to fight terrorism? If you apply for a job that requires a security clearance, the Feds/military are extremely interested in your credit and financial position.  It seems they don't want to reveal State secrets to people who are desperate for cash and could be manipulated by Evil-Doers ...

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Yes, I understand that.  But I think still think if you are majorly loaded then you might not be worried about your auto insurance premiums.  That is just my opinion.  And because I say that doesn't mean those people wouldn't check their CR and CS; I hope they do.  Now I left out business credit purposely because I wanted to focus on personal finance.

As for just_curious' situation I think there will be a solution but in due time.  I'm taking a Computer Science course right now and there's so much work in creating a program, let alone an algorithm.  Those must be developed and tweaked very carefully as not to destroy all the work.  Google updates their algorithm for their search everyday.  It's costly and time-consuming and I'm not saying that Fico couldn't do it but it will take time.  We must take into consideration that they're running a business and they have to choose what to implement in according to customer demand. 

[haulingthescoreup]

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@Anonymous wrote:
We must take into consideration that they're running a business and they have to choose what to implement in according to customer demand.

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And I'm not going for cheap cynicism here, but we should all remember that the "customers" in the credit world are not us schmucks, obsessing about our lates and inqs, but the lenders and other business entities.

[just_curious]

haulingthescoreup wrote:

I for one do not want anything more reported to the CRA's than what already is. One snapshot of my credit usage per month is plenty, thank you. And if they start reporting mid-cycle balances, or whether I PIF'd after the balance was reported, or my average balance over the month, that is just additional opportunities for things to get screwed up. And that means more crap that I have to try to clean up.

Actually, I was suggesting that FICO simply be told if a CC account is not charged interest, thus is PIF each month.  It is amazing that they try to set a CS without considering this aspect of CC usage.  And I can't see it as a big deal to add one, binary item to the info mix.

And the posting about all the other ways your FICO score can impact your life is right on point.  With the power FICO has developed, I would think a 95% accuracy rate (mentioned elsewhere) would be unacceptable - try applying a 95% accuracy rate in a few other aspects of life and you'll see what I mean.