*FICO is a Scam*

[Anonymous]

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@Anonymous wrote:
FICO is without a doubt a scam. It works to give creditors a assessment of how much interest they will make off you over time. It is stacked for the lender. Paying off too much too fast means the creditors don't make as much. It is designed to benefit lenders that pay for FICO scores by statistically figuring out which customers will pay the most fees. Customers that pay off every month and rack up points are not as profitable.

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Hi Johnny.  Glad to have you with us.  Welcome!

This is a common misconception.  Actually a person can have a perfect 850 score and have almost no debt at all.  It can be a bit of a challenge to have a perfect 850 without an open loan, but the loan balance could be quite small and hence you'd be paying maybe a dollar a year in interest.  Many of us here do exactly that.  Even without an open loan you can easily have a score in the 810-825 range.

And FICO does not reward you at all for paying interest on credit cards.  Most people who have extremely high FICO scores do not pay even a penny in interest to CC issuers.

There are other tools out there that help a CC issuer assess profitability, but the big FICO models are not among them.  The big FICO models measure only a consumer's risk of becoming delinquent. 

[NRB525]

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@Anonymous wrote:
FICO is without a doubt a scam. It works to give creditors a assessment of how much interest they will make off you over time. It is stacked for the lender. Paying off too much too fast means the creditors don't make as much. It is designed to benefit lenders that pay for FICO scores by statistically figuring out which customers will pay the most fees. Customers that pay off every month and rack up points are not as profitable.

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Congrats on searching and finding your intended topic.

Maybe hang around a bit to learn some more about what really goes into a FICO score? Keeping an open mind?

(spoiler alert: Scam isn't part of it...)

Cheers

[Anonymous]

I have yet to come across a single person who is well versed on FICO scoring that feels it is a scam. 

Any time someone says it's a scam, it's usually because they don't really understand the system.  My suggestion to the person above would be to spend some time reading in this (Understanding FICO Scoring) section of the forum.  I'm 100% confident that he and anyone else that does this will no longer call it a scam once they're armed with greater knowledge.

[SouthJamaica]

In all fairness to OP, there are several aspects of the FICO 8 algorithm which lend support to the view that FICO is intended to keep us in debt:

1. The penalty for having all credit cards paid down to zero.

2. The penalty for not having an open installment loan.

These cannot be justified as gauging credit mix and experience, because paid down credit cards and paid off installment loans demonstrate these as well as  -- indeed even better than -- accounts with balances.

[xaximus]

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@Anonymous wrote:

I have yet to come across a single person who is well versed on FICO scoring that feels it is a scam. 

Any time someone says it's a scam, it's usually because they don't really understand the system.  My suggestion to the person above would be to spend some time reading in this (Understanding FICO Scoring) section of the forum.  I'm 100% confident that he and anyone else that does this will no longer call it a scam once they're armed with greater knowledge.

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@Anonymous - I think many people have this misconception. I have had to explain many times over that FICO has your last 7 years of your data. Keyword - 7. In the OP's case, he may have cleaned up his act and everything but that does not remove what he may have done 6 years ago. Many don't realize that, just because they changed their habits, they are supposed to see an instant result. If you have baddies, don't expect to see anything major unless those baddies are removed. Otherwise, any point you gain, is a plus. I think that, in today's society, people sort of want that instant result, one of the results of technology. They don't realize that FICO scores go back upto 7 years. 

[Anonymous]

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@SouthJamaica wrote:

In all fairness to OP, there are several aspects of the FICO 8 algorithm which lend support to the view that FICO is intended to keep us in debt:

1. The penalty for having all credit cards paid down to zero.

2. The penalty for not having an open installment loan.

These cannot be justified as gauging credit mix and experience, because paid down credit cards and paid off installment loans demonstrate these as well as  -- indeed even better than -- accounts with balances.

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Hi SouthJ!

Remember, however, that our OP was claiming that FICO measured how much interest you paid to creditors.  Having a small $5 balance on one card does not entail any significant debt and it does not entail even one penny per year of interest.  (You could in fact report thousands of dollars every month and still pay zero dollars in interest, simply by paying the statement balance in full, which many consumers do via autopay.)

And FICO does indeed reward paying down credit cards -- just not paying all of them to zero.  (And even when that happens the small penalty gets removed instantly as soon as one card reports a small balance.)  We should keep in mind that it typically takes a lot of work to constantly keep all cards reporting zero.  Most consumers don't put in the extra work to do it and so the small All Zero penalty affects few people.

The more reasonable explanation for the AZ penalty is that it is a vestigial organ (as biologists would say) from a time (e.g. FICO 8 and earlier) when this was the only reliable way to determine whether a person was using his cards or not.  And that fact is relevant in assessing risk.  If someone regularly uses his cards but has never been late even once, that is a more powerful indicator of low risk than a person who's absence of lates is caused by having never used his cards.  It's a bit like someone who uses his bathroom every day and yet it is spotless, compared with a bathroom that is spotless because the owners has been on vacation for the last few years: if you are trying to assess the likelihood that when he comes back he'll keep the bathroom clean it is the former behavior that you are going to care about.

As far as the open loan that is mostly paid off, it's hard for me to judge.  It certainly seems to me as though that wouldn't have to be a marker for low risk, but then again I am not a statistician and didn't have access to the huge datasets that FICO's statisticians did when they developed and tested the FICO 8 model.  So the simpler explanation is that they were able to show some value in risk assessment there. 

In both cases the typical man on the street doesn't even know about these obscure corner cases -- he's usually surprised when he hears about them -- so if FICO is secretly in league with the Fat Cats of the Big Banks, then it's doing a pretty bad job about using its models to push people into debt.  When someone doesn't even know about your carrot and stick, it's hard for that to be a significant influence on their behavior.

[Anonymous]

I find it quite amusing/highly ironic that some posters actually believe that lending credit is a “trust situation” and use this to justify FICO. It just goes to show how effective conditioning can be. 

The incredible irony is that anyone could possibly consider the banking and finance sector “trustworthy”.  I’m sure this will get moderated out very quickly, but think of some instances where the policies and behavior of the banking/finance industry may have created situations that led to financial hardship for people, who were then punished again for years afterward by FICO. 

Where is my FICO score for lenders? What can I do to their “score” if I am financially harmed? I am forced into a relationship with them just to have a roof over my head, (even to rent !) and am completely at the mercy of a scoring system that punishes TRULY living within ones means, cash, and encourages debt.

Of course FICO is a scam, but since there is no other viable option, I play the game to get the most out of it.

[Anonymous]

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@Anonymous wrote:

I am... completely at the mercy of a scoring system that punishes TRULY living within ones means, cash, and encourages debt.

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I think it is useful for us all to gently circle back with a reality check, just to make sure certain ideas do not attain the status of Facts simply by repetition.  (This applies to all of us!)

The big FICO models do not punish people for living within one's means.  To not be living within one's means, as far as I understand the phrase, would be to spend money one does not have.  If you are doing that, in most cases it involves your revolving balances steadily going up.  As this happens, your FICO score will go down, not up.  (There will be brief periods where the score might plateau, but increasing CC debt will never cause a score increase, except for the rare corner case of going from all cards at zero to one card at say $5.)

People who live far under their means, by way of contrast, are by definition spending much less than they take home in income.  These people are increasing their savings each month and as a group are highly associated with the FICO-rewarding behavior of low CC utilization.  There are weird exception, like a person who decides he wants to exploit a 0% CC promotion and invest the money in a high-interest savings account, but these are very rare cases (largely because even today savings accounts don't make you that much money).  In general, people who live far below their means are extremely likely to be exhibiting behavior that FICO rewards (low CC utilization and never being late on payments).

And let's be fair about the $5 on one card thing... that's not real debt.  It would be debt if you were carrying the $5 over to the next month and paying interest on it.  But that $5 is simply evidence that you are using at least one card, and honestly there's just so much freedom and convenience today about being able to buy some groceries or some gas with a credit card (or a cell phone bill, or Netflix, or whatever).  These are basic necessities for modern life, such that if you had to physically produce of wad of green colored paper each time would be a real b___h. 

[Anonymous]

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@Anonymous wrote:

.... think of some instances where the policies and behavior of the banking/finance industry may have created situations that led to financial hardship for people

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I agree 100% that the banking and finance industry in the 90s and up through 2008 engaged in terrible policies and behavior which led directly to the 2008 meltdown, an event which devastated so many lives.  Democratic and Republican administrations were both complicit in this, so I feel like this is a fair thing to say without being politically partisan.

The documentary INSIDE JOB is one I personally found very enlightening here.  And the movie 99 HOMES is a touching reflection on the damaged lives you alude to.  Just saying that so that you know I am on your side in many ways.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

I am... completely at the mercy of a scoring system that punishes TRULY living within ones means, cash, and encourages debt.

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And let's be fair about the $5 on one card thing... that's not real debt. 

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And $5 is not real "credit" either.  The idea that you can score and hence judge someones "creditworthiness"  based on a $5 recurring Netflix is, IMO, ridiculous.  Then sit back and watch as creditors CLD for non-use, which I'm sure would have effect on scoring if you actually needed to use credit by punishing for utilization, and would't look great on manual review.

Paying cash is the very definition of living within ones means. You spend what you have, nothing more. Unfortunately the current societal reality nearly forces you into debt position. Major banks are TBTF, but we are not, and the FICO model ensures their profit (despite potential poor behavior) and your loss based on nebulous criteria and data. The FICO model says that people who score highest really don't need credit, how interesting.

Ask how anyone even knows that the data used in these models is valid, and one will likely hear "Because they said so."