Income doesn't matter to FICO!

[RobertEG]

Agreed.  We,as knowledgeable Credit-aHolics, know the game.  But millions of consumers out there dont read this site, or understand the real game. The point is that lenders DONT use FICO alone to make a lending decision.  Obvious and true.  Most consumers dont even know what a FICO is, and when a lender throws that term at them, they think it is some kind of holy grail, 11th commandment that was passed down from the gods above, and is the basis for whatever the lender chooses to do, for it is an objective (ha, ha) evlauation of their credit risk that is cast on a stone preceded only by the original Big 10 tablet.  Derived from Moses?  FairIsaac?  Same to them.  We know FICO is but a feeble portion of the total picture, but how many of the millions know that?  Lenders use FICO only when it is to their advantage, after considering their own model criteria, but then use the Holy Fico as an excuse, not for the grant or deny, but for then telling us that our Holy Fico is their justification for setting a higher interest rate in their credit offering.  Yeah, know how to play the FICO game, and use it to your advantage.  But dont let a new potential creditor get away with telling you that your FICO then becomes THE basis for their %rate offer. Believe me,they will unless you show them that you have the savy to present your case.

Message Edited by RobertEG on 10-14-2007 12:21 AM

[RobertEG]

If it were but a harmless obsession, I would tend to agree.  But vendors of credit scores offer scores, and advise, that lead many to making the absolute wrong credit decisions.  When they tell you, in their hairbrained analysis sections, that you "have too many accounts," that leads the novice to believe that the proper step is to close accounts.  

So, novice credit Joe sees this, and cancels old accounts, thinking that the FICO gods will now smile favorably!.  OOPS!  Oldest open account is now gone.  Credit limit from that card is also gone.  Avg on open accts is reduced.  Enticed to pay off collection accounts, only to see that it dont matter a jiggly on their score.  Score drops.  And novice Joe says, "I did what was suggested!!!  Why did my score drop??"  Dah!!!

A potential lenders tells you to pay off old collections accounts and drop old accounts in order to get his loan offer.  Credit lender dont give a rats posterior about the effect on your credit score.  So you do what he asks, and lose your prior best CCs, and suffer a big FICO hit.

Much of what is being advised by those who offer credit reports and scores can be more destrutive than helpful unless one has the knowledge offered by those on this site, who have seen it all and done it all.

It is NOT harmless, by any means.

[Anonymous]

Suze Orman just called me...Wants me on her program on Saturday.  Can't get enough of my big mouth on just the FICO forums pages. 

Now if I can just figure out how to speak in large, bright red letters I'll do fine on the show.

Message Edited by bobkelly on 10-14-2007 11:13 AM

[Anonymous]

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RobertEG wrote:

I think it is being a bit naive to state that income has no relationshop to ability tp pay debt... it certanly does.  Paying requires both abiliity and willingness. I think a primary reason why income is not included in FICO scores is due more to the fact that income data is something that they simply do not have the ability to collect and update regularly.  Just try to secure a home loan without disclosure of income, and you will realize that it does count.  FICO is thus not an overall measure of try credit worthiness, but more simply a historical snapshot of how you have paid debt in the fairly recent past.

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Lenders make the decision on your ability to repay a debt by your DTI ratio.  FICO is nota tool utilized for this.  FICO primary responsibility is to guage your willingness to repay not your ability

[Anonymous]

Your reply with the links below your signature was more beneficial than everything I've read (so far).  Thanks for contributing to this site.  

[QueenBean]

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@Anonymous wrote:

Lenders make the decision on your ability to repay a debt by your DTI ratio.  FICO is nota tool utilized for this.  FICO primary responsibility is to guage your willingness to repay not your ability

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Uhm, not so much anymore.....try getting a home loan with very low DTI but a 600 FICO.  It's all about the FICO because everyone is scared.

Why 600?  Because I was an officer in a business that failed & when it failed the partners walked, leaving me holding the personal guarantee on several large lines of credit.........which I settled incidently paying the creditors.

It would be nice if that had trashed my business credit score & not my personal score, since I've got a 20 year credit file with no lates - but such is a weakness with FICO and now I play their game to try to raise my score.

[haulingthescoreup]

Sorry you got burned this way!

The poster above you replied on a two-year-old thread, and things have changed since then.

Nevertheless, personal income is not part of FICO scoring. There are folks making minimum wage with beautiful FICO scores, because they never let themselves get bitten by credit. And the reverse is certainly true as well.

However, both income and scores are relevant these days in lending, as you say.

(Just want to point out the old-thread-ness for any other readers. )

[marty56]

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@QueenBean wrote:

It would be nice if that had trashed my business credit score & not my personal score, since I've got a 20 year credit file with no lates - but such is a weakness with FICO and now I play their game to try to raise my score.

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The weakness was not with FICO but using your own credit (cosign if you will) to back the loans.

[Anonymous]

It would seem that the debt to income ratio would have as much validity as a behavior predictor as the credit availability to usage ratio. A similar issue applies to which credit one is using.  I'd be very inclined to Max out a credit line with an interest rate of 0% over keeping a balance on a card that charged 12%.  Indeed, if the interest rate is 0% it is a sounder financial decision to take the funds, stick it in an insured savings account paying 1% and pay off the debt when the rate rises.  To properly factor this behavior it would seem one would need either the income, or liquid asset as one of the factors to compute probability.

[cashnocredit]

Lenders traditionally refer to the "Three Cs" for credit decisions. Character, Capacity, and Collateral. Of these "Character," or propensity to repay, has proven the most important. There are plenty of stories of high income people that flake out on debts they can pay. But most people want to and do pay their debts even when it requires taking a second job or other adjustments. FICO scores are designed to estimate risk of default. This is predominantly "Character" which is the desire to pay one's debts but also indirectly can factor in some degree of "Capacity." A long, clean payment record with gradually increasing balances/util is associated with inadequate "Capacity." This can be from loss of a job or career change or excessive spending. FICO, while it may focus on "Character" isn't an exact proxy. For instance someone may lose a job in a declining industry and there simply aren't jobs available. This isn't a Character defect, it's just reality at times that people that intend and want to repay may not always be able to do so.

The collateral question comes up when people borrow for homes or cars or even secured credit cards. The collateral provides some protection for lenders and allows them to make loans that might not be possible otherwise.

Additionally, CRAs do not allow reporting of income and , while they can report employer history, this is spotty at best.

Lenders fill in the gap, usually with a special custom acceptance score which is usually based on FICOs but with added info such as income, and, for some issuers, other financial assets. For instance both Amex and Cap One apps have entries for optional things such as savings and investment portfolio size. If provided, these will factor into credit decisions. The recent Card Act actually encourages including income and assets in credit decisions though it is far from a widespread practice outside of those under 21.