Is FICO. A scam?

[NRB525]

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@Anonymous wrote:
I understand what you're saying. It still to me doesn't encourage people to pay off a collection because they are already deemed unreliable.
But I would think that even if they paid it late it would give some benefit of the doubt to their willingness to pay rather than not pay at all.

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The basic premise of these credit scoring systems is, did the borrower pay according to terms? If so, then no penalty. If new, well we don't give full credit yet. With time and showing that the borrower pays within terms, that score and borrowing ability improves.

Now, if a borrower defaults, that is stepping outside the terms of the loan. The lender then has to incurr costs to chase down the borrower, try to recover funds, it costs them a lot of money to do that. By hitting the borrower FICO score hard for this incident, the borrower gets a real penalty for not paying. Other lenders get the communication that the borrower defaulted and adjust accordingly.

Sure, the borrower can get back on the bus by paying off the collection or missed debt. But the system wants that borrower to incur some cost, significant effort, and have to invest some time to do so, as a follow on so the borrower knows he/she is being penalized for stepping outside the tems of the loan.

Eventually, the system DOES allow the borrower to rebuild a good credit profile. That borrower, hopefully, is going to value what they have built a second time and not make the mistake of stepping outside the terms of a loan again.

But to expect the opposite side of this coin: Extra credit for making payments on time? No, that's the baseline expectation. The requirement.

[NRB525]

And here we are on page three of another thread where the OP has a grand total of 1 post, from 6 months ago.

I think we've got him convinced now!

[Anonymous]

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@NRB525 wrote:

And here we are on page three of another thread where the OP has a grand total of 1 post, from 6 months ago.

I think we've got him convinced now!

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He made his post and hasnt signed into the site again.  Nonetheless others can hopefully learn something from the thread.

[elim]

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@Anonymous wrote:

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@NRB525 wrote:

And here we are on page three of another thread where the OP has a grand total of 1 post, from 6 months ago.

I think we've got him convinced now!

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He made his post and hasn't signed into the site again.  Nonetheless others can hopefully learn something from the thread.

+1

   I like it. I enjoy resurrected posts, I usually learn a lot from them as they were searched out for a reason (usually Googled and the searcher doesn't realize the old date).

   My 2 cents....   7 years for unpaid and 2 to 3 years for paid collections/charge-offs/liens/etc.

   The installment pay-off is garbage, i'm either getting hit for "the remaining balance is to high" or i'm getting the hit for no loan. (scam)

   with CK getting as big as it is and using Vantage now, i can see a real welcome for both sides switching to Vantage.    Beware Fair Isaac... I would choose Vantage.

   edit:  and my choice is not based on my score difference

     

[NRB525]

Well, they have to provide some indication of the negatives on your report. There is always something, unless one is at 850.

And, FWIW, the reason people are granted a score of 850 is because they have generated a perfect history of payments... and no longer have any outstanding borrowings of any significance, so they are no risk to default.

There are two basic angles for FICO to work with:

How long has this person shown the ability to pay? (if longer, without derogs, then the score can go higher)

Are there any funds currently at risk of default? (if nothing is borrowed, the score can go higher)

Easy to see how short credit histories with large borrowings, or histories with any negatives, could be dragged down.

[elim]

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@cashnocredit wrote:

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/

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  thanks for the link!  excellent article and great info on the right sidebar there!!

 heres another good one

  https://blegrange.wordpress.com/tag/risk-profitability-models/

[elim]

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@NRB525 wrote:

Well, they have to provide some indication of the negatives on your report. There is always something, unless one is at 850.

And, FWIW, the reason people are granted a score of 850 is because they have generated a perfect history of payments... and no longer have any outstanding borrowings of any significance, so they are no risk to default.

There are two basic angles for FICO to work with:

How long has this person shown the ability to pay? (if longer, without derogs, then the score can go higher)

Are there any funds currently at risk of default? (if nothing is borrowed, the score can go higher)

Easy to see how short credit histories with large borrowings, or histories with any negatives, could be dragged down.

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  thats what i would think until i get the major score drop when a loan is paid off and i have 4% Utilization at most. But i understand i'm a rebuilder with a 5 year old baddie and low accounts age. just PO'd i can't get my scores up. I'm also aware the models can't read my mind or know my intentions of "never defaulting again". I'm at their mercy,,, Unfair Isaac lol   

[MidnightVoice]

I don't think FICO is a scam.  But unfortunately there are so many scores available to lenders right now that it is sometimes less accurate than CK!!

[Anonymous]

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@MidnightVoice wrote:

I don't think FICO is a scam.  But unfortunately there are so many scores available to lenders right now that it is sometimes less accurate than CK!!

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I agree..  MYFICO is what most lenders used based on my experience, investing a little money to be updated constantly is not something I consider a scam.  People spend $20 -$30 bucks on silly things.  Why not use it on something that actually helps and shapes your financial future for the better.  It is absurd to consider MYFICO a scam.

[Anonymous]

I suppose the grand question is, Is the past performance the best indicator of future results? For the most part it is all we have to go on. If you have a friend who is regularly broke before payday, and youloan him 50 bucks on Wednesday regularly,and he comes over after cashing his check and pays you back on Friday, he is probably going to pay you back the next time too. You have another friend who is a bit sketchy. He does the same but you don't see him for a few weeks after giving him the 50. He is probably less likely to get the 50 than the poor money managing friend who pays back every time on time.

Now if you have half a million friends with 50 million data points, how do you know who is less risk than whom? Obviously the individual relationship becomes less important, and having some method to score friend 1 vs 2-499,999 almost needs to be in place. With all of those data points, there are certainly things you can do to makeyour deision making easier. Some of us feel that our paid collection makes us less risky, but do statistics bear that out? I don't know, and dont have the data to find out, nor the time. And if things change over time how often do we change the finish line? How often do we update the predictive technology? If a lender gets comfortable with the risk percentages associated with a certain mix, will they be willing to change if you find a supposedly more reliable indicator, or would they prefer to stay with the known, rather than an unknown, but supposedly more predictive system.

And, all you have to go off of is 50milion past data points. So it says that person 1 with a 6 year old paid collection is a 27 percent risk to default on a new debt. Person 2 with a perfect record is a 2 percent risk. 2 years down the road, when person 1 has that paid collection gone is the same person, but he is now also a 2 percent risk. Is that fair? maybe, maybe not. But when you are loaning money out to millions of consumers you have to use something that allows for speed (read all the posts on people having to wait for cards) and some predictive risk assesment.

We here search out the best offers for our spending patterns. What benefits us the most. We are the reason for the drop in personal relationship lending as much as anyone. I personally like being able to call a discover rep at 3 am (when I get home from work) get a person if I need assistance and get resolution. That is a big reason why discover is more likely to come out of my wallet than another card. An extra dollar or two in cash back from BOA or Citi is probably not likely to change that. On a bigger purchase of say 3k the DC may come out because we are now talking 30 bucks.

The system may not be perfect, but I will assure you, if you build a device to scan peoples brains and find out if they intend to pay their debts, that would not be perfect either. Changes in circumstace, mood, whatever would render that more or less useful,but certainly not perfect.