FICO should release their formula

[MidnightVoice]

Not really - be fiscally responsible for an extended period of time and you will get scores that allow the best rates for most loans and credit cards.

[haulingthescoreup]

---

@Anonymous wrote:
Here's my problem with all this, Midnight.

It's like with car insurance. Yes, having a certain car can cause you to have higher rates. Having previous accidents can set your rates. That's fine, too.

However, telling you which roads to take, when you drive, is how FICO does. They tell you which roads you should drive, how many passenger's you should have in the car, what type of music you should have on the radio.

In essence, they are controlling your behavior to play a game. None of us want to play the game. We just want a system that tells lenders whether we pay or bills or not.

---

I don't think that's an exact parallel.

It's more this way: FICO has observed through research and statistical analysis that if you drive road X, and carry Y or more number of passengers, and listen to FM station Z, you are more likely to have accidents. And since the job of risk analysis is to predict the likelihood of unpleasant outcomes, FICO will assign you a risk score that reflects this.

You are completely free to drive these roads, cram your car full of passengers, and crank up the radio to the point where cows in the fields lose their milk. On the other hand, if you want a different score, you can choose to act differently.

The system that you're talking about, "a system that tells lenders whether we pay our bills or not," isn't risk analysis. It's just a collection of accident reports.

FICO is in the business of risk analysis, not updating your credit history. That's the job of your creditors and the credit bureaus, and I might add, they don't do it very well.

[Anonymous]

---

@haulingthescoreup wrote:

---

wordslayer wrote: Here's my problem with all this, Midnight. It's like with car insurance. Yes, having a certain car can cause you to have higher rates. Having previous accidents can set your rates. That's fine, too. However, telling you which roads to take, when you drive, is how FICO does. They tell you which roads you should drive, how many passenger's you should have in the car, what type of music you should have on the radio. In essence, they are controlling your behavior to play a game. None of us want to play the game. We just want a system that tells lenders whether we pay or bills or not.

---

I don't think that's an exact parallel. It's more this way: FICO has observed through research and statistical analysis that if you drive road X, and carry Y or more number of passengers, and listen to FM station Z, you are more likely to have accidents. And since the job of risk analysis is to predict the likelihood of unpleasant outcomes, FICO will assign you a risk score that reflects this. You are completely free to drive these roads, cram your car full of passengers, and crank up the radio to the point where cows in the fields lose their milk. On the other hand, if you want a different score, you can choose to act differently. The system that you're talking about, "a system that tells lenders whether we pay our bills or not," isn't risk analysis. It's just a collection of accident reports. FICO is in the business of risk analysis, not updating your credit history. That's the job of your creditors and the credit bureaus, and I might add, they don't do it very well.

---

A previous collection of accidents isn't risk analysis? Of course it is, and a very good one. This isn't the stock market. Here is what I think.......it's not that they don't have a right to do whatever analysis they want, because they do, but do they, or should they have the power to keep you out of the premium range because you don't choose to do exactly what they say you should do? My brother has a clean credit history. He has a long credit history. He doesn't have any revolving credit. He has a mortgage and a car loan that he has maintained for years. However, he doesn't fit the model that FICO deems is appropriate for the most premium scores, and that's where I have a problem. Do all the risk analysis you want, but don't penalize people because they didn't play the game that FICO says you need to play. It's crazy to me that they can't put you into a premium range, just becuase they don't like the types of credit you have. And I won't even open up the can of worms of how askew their system is if you have a negative on your report. About your point here: "FICO has observed through research and statistical analysis that if you drive road X, and carry Y or more number of passengers, and listen to FM station Z, you are more likely to have accidents. And since the job of risk analysis is to predict the likelihood of unpleasant outcomes, FICO will assign you a risk score that reflects this." It should matter what you've DONE......whether you have had the accidents. Whether you killed someone or had a hit and run. Do all the risk analysis you want, but the bottom line is what you do or have done. And if anyone thinks that having ONE organization to go to that lenders use to assign scores is capitalism, then think again. I believe it's called a monopoly.

Message Edited by wordslayer on 04-13-2008 04:19 PM

Message Edited by wordslayer on 04-13-2008 04:19 PM

[haulingthescoreup]

---

@MidnightVoice wrote:
Not really - be fiscally responsible for an extended period of time and you will get scores that allow the best rates for most loans and credit cards.

---

But Sir Chaos, haven't you posted that this is what you did for years, other than the Unfortunate Incident of the Cell Phone Inquiry, and your scores were non-great? And that it wasn't until you learned how to play the game that they finally started to move?

We have members here with 800 scores because they have had credit for 20 or more years, have never made a mistake with it, and by natural inclination rarely use their cards, and therefore don't need to think about timing payments.

For the rest of us, with feet of clay, playing the game is a proven way of getting our scores to a point much farther along than they would otherwise have been.

[haulingthescoreup]

---

@Anonymous wrote:

A previous collection of accidents isn't risk analysis? Of course it is, and a very good one. This isn't the stock market.

Here is what I think.......it's not that they don't have a right to do whatever analysis they want, because they do, but do they, or should they have the power to keep you out of the premium range because you don't choose to do exactly what they say you should do?

My brother has a clean credit history. He has a long credit history. He doesn't have any revolving credit. He has a mortgage and a car loan that he has maintained for years. However, he doesn't fit the model that FICO deems is appropriate for the most premium scores, and that's where I have a problem.

Do all the risk analysis you want, but don't penalize people because they didn't play the game that FICO says you need to play....

---

To confuse the heck out of everyone, I'm switching metaphors to medicine.

I'm in health information, AKA medical records. I go through outpatient and inpatient records, pulling out all the diagnoses, signs, symptoms, and treatments, turn them into codes, and enter them into the hospital database. In this stage, they are meaningless. Patient Smith has had lung cancer, two heart attacks, colon cancer, and a knee replacement; he smokes, drinks a little too much, and is obese. All by itself, this means nothing, except to Mr. Smith.

But when someone wanted to find out why people had heart attacks, or lung cancer, or colon cancer, or had to replace their knees at age 58, they pulled thousands and thousands and thousands of records like Mr. Smith's, and they started seeing corollaries. People who smoke are more likely to have lung cancer and heart attacks. People who drink too much are more likely to have colon cancer. People who are obese are more likely to need knee surgery. And so forth.

Sure, there are smokers without lung and heart problems, drinkers without colon cancer, and overweight people whose knees are fine. And there are also those who had these conditions, but never had the risk factors in their histories. But by collecting all this data and analyzing it, healthcare providers have a pretty decent idea how likely someone is to have future health problems.

So it's basically the same thing with FICO. They collected the data and analyzed it, and they found that certain behaviors were predictive of bankruptcy and other unpleasantness for creditors. Creditors want this information to decide with whom to do business, and so they buy FICO scores, getting customized formulas in the process. And it's creditors who decide whether to make loans or not.

People get hostile at predictions based upon statistical analysis, and sometimes the research needs to be updated, and the formulas need to be re-examined. But there is a market for this, and that's why there are FICO scores.

People like your brother are the outliers --those with unusual situations, or with insufficient data to make good predictions. They're like kids who are abysmal at their SAT's (another form of statistical analysis), but who are greatly gifted. They will need to have personal interviews with college admissions panels (their version of a manual review, I suppose) to be recognized for what they can bring to a college and one day, their careers.

No one statistical model can encompass everyone --they go for the main blob of consumers. Those who live pretty much off the credit grid are underscored, pretty much due to insufficient data.

[Anonymous]

Not a bad analogy, Hauling.....

However, people who are healthy shouldn't be outliers.

This is a flawed system that gives too much emphasis to people who have charge cards, and not enough weight to people who refuse to play a lot in the credit card game.

Personally, I think everyone should have manual review, because we aren't all applying for credit as a group, so why should we be scored that way?

Maybe the problem I have is that lenders give way too much weight to a fico score.

[Anonymous]

continuing the medical analogy.....

It would be like your doctor telling you that, if you want to have better health insurance rates, then you need to go to restaurants that have a buffet, but then you should just eat a salad.

Message Edited by wordslayer on 04-13-2008 05:07 PM

[MidnightVoice]

---

@Anonymous wrote:
Not a bad analogy, Hauling.....

However, people who are healthy shouldn't be outliers.

This is a flawed system that gives too much emphasis to people who have charge cards, and not enough weight to people who refuse to play a lot in the credit card game.

Personally, I think everyone should have manual review, because we aren't all applying for credit as a group, so why should we be scored that way?

Maybe the problem I have is that lenders give way too much weight to a fico score.

---

Well, the people who do not use credit cards will not be applying for credit cards, so they will be less affected by FICO

[Scamp]

For me, the experience with my FICO scores tanking over the last year due to not knowing about high utilization and subsequently being rate-jacked by WF despite flawless payment history with every creditor felt rather like being thrown in jail for the crime they THINK I'm gonna commit because my neighbor down the street committed said crime when he/she was in a similar situation to mine. 

I can see using FICO scores and credit reports to give lenders some idea of someone's credit-worthiness when deciding whether or not to extend credit, but I feel each person's actual performance payment-wise with that creditor is what should matter once the account is open, and that A.A. based on FICO scores or UTI or having problems with paying another creditor is not only unfair but counterproductive. 

If I did start having financial problems severe enough to cause me to have to start missing payments with one or more creditors, whom do you think I'm going to make the best effort to pay - the ones who've honored my good payment history up to that point by maintaining our original agreements, or the ones who've taken A.A. on me for no real reason to do with my performance in paying on my account? (I was so furious about my rate-jacking that I actually asked this of one of the WF Credit Dept. people.  I don't think they liked me. ) 

Judge me by MY actions, not by those of Joe Schmoe down the street.  Unless I'm late paying, miss a payment, go over limit, etc., on my account with you, then leave me alone.

(And if wishes were horses, we'd all ride astride.  I know.  Thanks for letting me vent.  Back to reality, studying and learning to play the FICO/credit game...thanks to all of you, I'm starting to get the hang of it.  )

[haulingthescoreup]

I would really, really, really like to see good, research-based statistics on credit risk using the balance showing the day after the due date, instead of the balance on the statement date.

I can't help but think that this would show that consumers like scapegrace are perfectly good credit risks, despite using cards a lot, and not paying until the statement hits.

I'll bet that the decision to use statement balance came from back when people just didn't use credit very much at all, so any evidence of high credit use, as reflected by a high balance on the statement, made that person a higher risk. Now that so many of us use plastic in order to get rewards, or minimize carrying cash, or out of distrust of debit cards, it's probably an invalid indicator.

Of course, if they switched to balance showing the day after the due date, we'd all have to scramble around and come up with a new payment pattern to beat the system!

And wordslayer, it is tough for the "healthy" people! Probably instead of receiving lower scores, they should receive an "insufficient data" rating or something, that would indicate that any app would need a manual review. This also happens to adult immigrants to the US who have to establish credit all over again. There they are, no history and no score, getting their BofA secured card and a Cap1 for the good foreign exchange rate, and gutting it out with those who are recovering from credit disaster. The difference being that after their secured card graduates, they're looking at 720's!