FICO should release their formula

[Anonymous]

haulingthescoreup wrote:

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.

I tend to think it's not really a conscious decision to use "statement balance" due to that piece of data providing a better risk analysis than "balance after due date," for example.  I think it's much more a result of the fact that FICO can only use what's on the reports, and CCCs as a rule tend to report statement balances.

FICO never made the decision which balance to use.  CCCs make that decision for them every month when they report.

[haulingthescoreup]

I realize that this is the data field in the credit reports. But I'll betcha that if research showed balance after due date was a better predictor, the lenders would start reporting that instead.

I mean, even now HSBC does its own thing for reporting, so it's not like using the statement balance was given to Moses on Mount Sinai or something.

[Anonymous]

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haulingthescoreup wrote:
I realize that this is the data field in the credit reports. But I'll betcha that if research showed balance after due date was a better predictor, the lenders would start reporting that instead.

I mean, even now HSBC does its own thing for reporting, so it's not like using the statement balance was given to Moses on Mount Sinai or something.

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That's true.  If there is a sort of unstated conspiracy among lenders to determine which balance they report, though, I'd guess they wouldn't care so much about which balance would have more predictive value.  They'd probably report the balance that tends to be the highest, in order to artificially depress FICO scores so they can justify higher rates.

In an amazing coincidence, I would also guess that most people have their highest intra-cycle balance right around their closing date.  Truly a strange phenomenon that the balance on the closing date is probably the highest balance as well as the one that is generally reported.

[haulingthescoreup]

Silly lenders! Now we're on to them.

[Anonymous]

LOL.....

FICO restaurant analogy now

They want you to go to a buffet......but for you to get rewarded, then all you should eat is a salad, but by gawd, you had better go to a restaurant that has a buffet. Because it's all about utilization.

[Junejer]

To kind of get back to some of the original points, we have to remember WHO the clients of FICO are. The clients are the lenders. They have decided what sort of data that they want to see, so they are the ones who make the rules.

Also, I recently (up until 3/3/08) had a 768 EQ FICO WITHOUT any open revolving credit. I misjudged when HSBC would report and my score tanked. I have corrected the problem (and play the game now), in order to get my scores back to the high achiever range.

The other reason why the FICO model gives more credit to revolving debt is because they should. It's unsecured and therefore the most risky. Why shouldn't there be a greater risk/reward applied here?

Speaking as a former banker (commercial and retail), FICO is but only one of the factors considered in giving someone credit. I have turned down people in the high 700s and given people loans in the 500s. The "lenders" that give such weight to FICO are the ones taking the greatest risk (the CCCs).

[Anonymous]

just amazes me that people see no problem with an organization that scores your credit wants you to have revolving charge accounts so that you can achieve their highest scores.

Message boards are FILLED with people getting charge accounts, even junk cards, such as jewelry and store cards, and then having to buy things, by charging them, and then paying them off.

Yeah, if one were just guessing, it's almost like the fox guarding the hen house. How can you not defend a system so noble as this?

[Junejer]

FICO is not a monopoly as you suggest Wordslayer. There is competition. Banks are free to use Vantage Scores, Plus scores or any of the other miriad of credit scoring algorithms that are available. However, they feel most comfortable with the FICO model.

So, we are to penalize FICO for being the industry leader and gaining the trust of their subscribers. I suspect that the same arguement would be alive if Plus or any other credit score were mostly widely used.

Again, I achieved 768 on EQ FICO with only a small maxxed out installment loan was open. I expect that by adding the credit mix, my score will actually surpass that. There is nothing wrong with rewarding me for using the most risky type of credit responsibly and vice versa.

[Anonymous]

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@Junejer wrote:
FICO is not a monopoly as you suggest Wordslayer. There is competition. Banks are free to use Vantage Scores, Plus scores or any of the other miriad of credit scoring algorithms that are available. However, they feel most comfortable with the FICO model.

So, we are to penalize FICO for being the industry leader and gaining the trust of their subscribers. I suspect that the same arguement would be alive if Plus or any other credit score were mostly widely used.

Again, I achieved 768 on EQ FICO with only a small maxxed out installment loan was open. I expect that by adding the credit mix, my score will actually surpass that. There is nothing wrong with rewarding me for using the most risky type of credit responsibly and vice versa.

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Microsoft is not a monopoly either, because it has all the competition breathing down their back too, huh?


Why should anyone, if they are applying for a car or a home, have to build up credit card activity if they do not want credit card debt? Defend to me, if you are wanting SECURED money why you should have to prove yourself with unsecured debt?

Does being, literally, forced to get cards and buy stuff on credit, to get secured debt at premium pricing not seem just a little wrong to any of you?

Message Edited by wordslayer on 04-13-2008 08:19 PM

[Junejer]

Word, you keep ignoring the fact that I recently had a 768 on EQ WITHOUT an open CC. It can be done.