Income doesn't matter to FICO!

[Anonymous]

One thing I have noticed is that the few times I've applied for credit, the lender has asked about income on the loan application. Maybe the FICO folks figure it's up to the banks to decide whether the amount of income is important.

I have never had a late payment and nearly always pay off my credit card balances at the end of the month so my credit score is right about 700, but it's very difficult for me to get approved for even small loans, and in their explanations, the lenders always list my crappy income as the reason. So it does matter, I guess just not to FICO.

[Anonymous]

I'm concerned that our society relies too heavily on FICO and is getting lazier about common sense lending. Specifically, I'm thinking of the situation where a person has paid all debts back, paid off her mortgage, and has several savings accounts for different purchase goals. She pays for everything in cash and is so financially responsible that she has saved in advance money for big purchases like school, car and emergencies and doesn't have a need for installment loans or car loans. However, this person receives a job transfer to a more expensive state, sells her current home, applies the earnings to a new home in the new state but still needs to take out a loan to make up the difference in home price. Her FICO is terribly low (if existent at all) because she has no current debt/loan records on file. What then? She is charged a higher interest for not having a debt history on file. She is essentially being punished for becoming self-reliant and not carrying debt. Is our dependence on FICO creating a culture of dependence on loans?

[Anonymous]

Tell me about "the because you're not in debt up to your eyeballs you are a risk".

I own 2 properties free and clear - last mortgage PIF in '94.  My previous car I paid cash for (DH financed this one for me).  We wanted to buy a house last year and my non-existent FICO score was killing us even with 20% down (DTI was high because of the car loans though).

So I have spent the last year re-establishing my credit with sub-prime cards.  Believe it or not before I went 'debt free' I had a Plat AmEx along with assorted other Plat cards (when having a Plat card actually meant something) - it was making the final payment on that mortgage (15 yr loan paid off in 7.75 years) - that gave me the urge to give it all up. And I do regret that decision - now.

[Anonymous]

One one hand, people can manage their bills well no matter how much they make, but I agree that there needs to be some common sense in lending. So, your income doesn't matter, but the bank should be careful not to give away the house to a person making 22k per year just because his fico is 770 or so. This is hypothetical.

[Anonymous]

ru2sirius wrote:

Maybe the FICO folks figure it's up to the banks to decide whether the amount of income is important.

...

it's very difficult for me to get approved for even small loans, and in their explanations, the lenders always list my crappy income as the reason.

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It's going to depend upon how much of a loan you want and for what. The bank might look at your FICO score and see you are a low risk to default. However, if you're making only $22K a year, they're likely not going to give you a $500K mortgage with $0 down because your DTI would end up being 147%.

FHA, IMHO, is a good example of good and fair lending practices.

• No lates in the last 12 months, so despite any past negatives they see you as on the right track.
• 3% down on the home under the theory that it's not a hugely onerous amount for most folks in most markets, and it decreases one's likelihood of defaulting because one has something at stake in the home.
• DTI and income requirements because they want to know that one truly can afford the payment.

This last point is the key why FICO and income are not connected. Being a good credit risk means you're a good credit risk DESPITE your income.

If you're a bad credit risk with a low income, then you're likely to continue being a bad credit risk if your income rises.

If you're a good credit risk with a low income, then you're likely to continue being a good credit risk if your income rises.

[Anonymous]

That's like saying "size doesn't matter" but a 4000 sq foot house costs more than a 800 sq foot studio - doesn't it (okay maybe NYC excepted but every place else that's true.)

I know lots of professionals with high income, tax liens, judgments, etc., who can still get approved for fairly large loands and credit lines. If you make $500k per year it's more reasonable to lend you a $200,000 credit line than it is to give the same line to some guy who makes $50k / per year.

My income is over $200k/yr and a tax lien and one lousy judgment that is not mine have screwed up my credit for two years now. Getting the mix-up on name is NOT easy to correct no mater what one does at one of the CB's. The other two are much better about reading and acting on documentation they're supplied. The worst one seems (in my experience anyway - ) to be Experian. But your milage may vary.

Because of the income, I can get most credit I apply for. But not at the most favorable rates/terms/etc. I end up paying more - although not a huge amount more - on most lonas, etc. My scores are in the 670 to 710 range right now. Guess who's the worst? Not a briliant rating but it's not deadly like the 500's were once upon a time.

[Anonymous]

Income certainly is associated with the ability to repay debt.  I try to keep my credit limits on credit cards under control so the risk of high level misuse is minimal.  With this strategy, I have dinged my FICO score because if I am using 40% of my available credit on the one credit card I use every month.  I am perfectly capable of paying this off in full  every month with my level of income (and do) but my FICO score is affected negatively.  I refuse to give up the 1% cashback bonus I get for charging EVERYTHING I possibly can just to get a better FICO but it is frustrating.  I should not have to aquire more credit just to prove I can use it responsibly.  My income to debt would prove that!  It's all a stupid game but since my FICO score is in the top tier, I can't complain too much. ( just enough, I hope)

It seems paying my house off may have hurt me too.  Gee, I must be a real risk.....

[haulingthescoreup]

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@Anonymous wrote:

Income certainly is associated with the ability to repay debt. I try to keep my credit limits on credit cards under control so the risk of high level misuse is minimal. With this strategy, I have dinged my FICO score because if I am using 40% of my available credit on the one credit card I use every month. I am perfectly capable of paying this off in full every month with my level of income (and do) but my FICO score is affected negatively. I refuse to give up the 1% cashback bonus I get for charging EVERYTHING I possibly can just to get a better FICO but it is frustrating. I should not have to aquire more credit just to prove I can use it responsibly. My income to debt would prove that! It's all a stupid game but since my FICO score is in the top tier, I can't complain too much. ( just enough, I hope)

It seems paying my house off may have hurt me too. Gee, I must be a real risk.....

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Do you time your repayments? Run up your card and get the cashback, but pay down to 1-9%, let it post, PIF, and then start over again. Since you PIF every month, looks like all you need to do is change when you pay.

It's a silly game, but for the majority of us who have to play (get mortgages, car loans), we might as well learn the rules and strategies so that we don't get trampled in the dust.

Message Edited by haulingthescoreup on 09-26-2007 05:45 PM

[Anonymous]

You are right about that....playing the game has made it financially possible to do everything I have accomplished in the past 3 years. Playing the FICO game has worked!

I guess I will just monitor my current situation and hope that there isn't anything else that will bring the score down any further. (I doubt there is).  I have lost almost 30 points in a year where I am enjoying quickly increasing net worth and freedom from any debt whatsoever.  Ironic, isn't it?

FYI, I pay my bill at the lastest possible datr so that I can keep the money in savings for as long as I can.  I guess I would rather make 6 to 8 dollars each month than make my FICO go up.

[haulingthescoreup]

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@Anonymous wrote:

FYI, I pay my bill at the lastest possible datr so that I can keep the money in savings for as long as I can. I guess I would rather make 6 to 8 dollars each month than make my FICO go up.

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And that is probably what normal people do! LOL

Unless someone's getting ready to borrow some big-time bucks, there's not any reason for all the timing, except for those of us who are having fun seeing how the system works (and maybe getting the eensiest bit obsessive about it, I'm starting to realize...)

Congrats on your great year!