@Anonymous wrote:My main issue is ths 'score' has circumvented the lender to borrower relationship. This simple score dictates way too much... no decision taken by bank, just an algorithm now. FICO doesn't consider: age;experience; work history; education; field of work; location; family; savings; spending (cash) and much more. It's really a foolish mess. I've had okay credit for 20 years, yet oddly, haven't missed one payment in that time, regardless of what FICO thinks or tries to predict. I'm a programmer, and to be honest, I'd fire the lot that came up with this "roll of the chicken bones"... yep it's a game only, with my only real advice is to learn how to play it, and it has little to do with paying off debt!
OP, I started a new thread for you. ~Lexie
A FICO score doesn't take those factors into account, but I can assure you the lenders do.
The score is just one factor in their underwriting, and the minimum score for a whole slew of products is pretty low, but some of the other hurdles are non-trivial and if you don't meet them you're out of the pool much like you would be if your FICO score doesn't rate. Really the only place where FICO is utterly set in stone is on the conventional and FHA (possibly USDA/VA) third-party guarunteed or purchased where it's absolutely not negotiable (ignoring secondary and unconventional qualifications, even those are set just by different guidelines).
For everything else, there's a non-trivial element of let's make a deal with the bank.
@Anonymous wrote:My main issue is ths 'score' has circumvented the lender to borrower relationship. This simple score dictates way too much... no decision taken by bank, just an algorithm now. FICO doesn't consider: age;experience; work history; education; field of work; location; family; savings; spending (cash) and much more. It's really a foolish mess. I've had okay credit for 20 years, yet oddly, haven't missed one payment in that time, regardless of what FICO thinks or tries to predict. I'm a programmer, and to be honest, I'd fire the lot that came up with this "roll of the chicken bones"... yep it's a game only, with my only real advice is to learn how to play it, and it has little to do with paying off debt!
OP, I started a new thread for you. ~Lexie
"Relationship" lending has been on a decline for decades. It is virtually impossible for banks to assess future portfolio risk based on "relationship" decisions and it is prone to individual judgment quirks. There have been numerous studies that have shown lending can be more reliably and profitably done by minimizing the judgement factor.
Since you are a programmer you might look into how logistical regression and scorecard grouping is used to create credit score models.
What is really happening is people's misunderstanding of the purpose of credit scores.
Credit score does not really estimate creditworthiness like most people would think. What is represents is credit management habits, regardless of income level. I will give you an example of what credit score predicts and one example of what it does not.
Say A earns 100k a year, and so does another individual named B. Each of them has 2 credit cards and 1 auto loan.
A always pays credit card bills and installment amounts on time. B, however, keeps missing these payments. Why is that?
Most likely, B lives beyond his means, does not take into account his debt obligations in his budget, and runs out of money all the time, making him unable to make timely payments. He has to open new credit cards and loans to pay his older debt. A, on the other hand, is frugal, does not overspend, and has enough money left over every month to make the payments because he plans the debt in his budget. 2 years down the road, the debt B has accumulated is so large that his monthly interests are larger than what he has left over after his other expenses, so he refuses to make payments altogether; he is in default.
Credit score is supposed to predict situations like A's vs B's, regardless of their income: they make the same, but one ends up in default, and the other does not, and this is because B has much better debt management habits.
Now let's say we have 2 other individuals: C and D. Each of them has a credit card with a $20k limit. C makes $30k per year and lives in Manhattan, while D makes $100k and lives in Kansas City. Their credit profiles are identical. C puts most of his expenses one his credit card and makes the minimum payment every month. D puts his expenses on his credit card as well, but always pays off the full balance. In 2 years, C's credit card debt has grown to 10k, at which point C realizes he can never pay off the balance and files for bankruptcy. His credit score is stellar, and yet he is in default.
Credit score is not supposed to predict situations like C's vs D's. They both have excellent credit and exhibit good debt management habits, but one ends up in default and the other does not. This is where other factors such as income, DTI, cost of living, etc. come into play.
When determining whether they should extend credit, a lender looks at the overall financial picture of the borrower including credit score, specific credit profile, income, cost of living, DTI, etc. Credit history is only one factor among many that determine creditworthiness. We need to stop saying that credit score determines creditworthiness. This is plain wrong.
This article by a credit risk blogger discusses the evolution of credit from personal relationship lending to fixed processes and scoring. It's not specific to FICO but looks at the way credit has evolved in both the developed world and emerging countries. It explains the driving force behind credit scoring which enables more people to more easily obtain credit at a given, overall risk and profit level.
Developing to Developed: The Evolution of Credit Risk Strategies
https://blegrange.wordpress.com/2011/03/15/evolution_of_credit_risk_strategies/