TIME: Understanding its relevance to FICO scoring.

[Anonymous]

Well, I suppose one of my arguments then should be that FICO scoring should consider information older than 7-10 years in some instances, be it negative or positive.  Naturally, the most current information is always the most important and thus weighed the heaviest, so considering older data wouldn't be all too impactful either way to a credit score.  I think trends in credit behavior over time are extremely useful in evaluating creditworthiness and evaluating risk in addition to all of the other data that we already know and that is taken into consideration by the FICO algorithm.

If you know that 2 otherwise equal people have had perfect credit history for the past 7 years, but in the 30 years prior to that Person A never missed a beat with anything credit-related while paying off a 30 year mortgage and Person B had negative accounts every year or two over the course of those 30 years, IMO, despite fantastic credit behavior for the past (most recent) 7 years, Person B should be viewed as more of a risk based on past behavior and the longevity of their poor credit behavior.  Conversely, Person A exhibited extensive positive longevity.

I'm not saying that these two people should have drastically different scores today with what I'm proposing (the consideration of > 7 year credit behavior) but to me, it doesn't seem logical that both could possess equal say 720 scores.  705 vs 720 or something maybe, I don't know.

There's more than enough cushion built in to FICO scores to take these things into consideration.  We always talk about how scores of 740+ or 760+ (take your pick) can get you anything that someone with an 850 score can get with respect to lending.  There's basically 100 points of fluff (cushion) built in.  So maybe the guy with 30 years of spotty credit behavior can only cap out at 830-835 instead of 850.  Again, just numbers for the sake of discussion here.  Assuming he's got a perfect credit profile, it wouldn't really matter but if he's one of those "on the cusp" type of people that would normally have a 730 score, maybe it's only 710-715 where it could matter.

Maybe there should be some greater incentive for scores above 740-760.  I know this conversation is going in different directions at this point, but any discussion with you insightful gentlemen is a positive one regardless of where it goes!

[Anonymous]

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@Anonymous wrote:

Well, I suppose one of my arguments then should be that FICO scoring should consider information older than 7-10 years in some instances, be it negative or positive....

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You made lots of good points, buddy.  Just to clarify though again, however, your real quarrel is not with FICO and what it should do -- the problem is with the FCRA and the limitations it places on what can go in one's reports.

My guess is that FICO would be delighted to consider derogs older than 7 years.  It's just that it can't because those data aren't in the reports by the time they get dropped into the FICO algorithm.  And because it cannot see such derogs, the presence of the 25 year old account doesn't tell as much positive information as we'd like, because it might have had lots of derogs that fell off. 

There's a slight bit of positive inference FICO can make about an old account.  FICO has no idea whether there were scads of lates on it (older than 7 years).  But FICO can conclude that you must have handled at least well enough that it wasn't closed by the issuer or charged off due to you completely failing to pay.  The fact that you have an open account that is 25 years old without that level of disaster happening does say something a bit positive.

[Anonymous]

True.

I guess another point that I find myself arriving at is that it would be nice if FICO scoring could take into consideration more of the things we know are considered upon a manual review with a human being / underwriting.  I mean, if 5 different human beings can take a 3 minute look at someone's credit report and conclude by looking at it that it's "better" (or "worse") than the corresponding score, to me it would simply make sense for the score to be more indicative of the report.  Because, after all, there are plenty of times (probably more often than not) that human beings are not part of the equation and a computer is making a decision based on a score or limited information.  I'm sure this has been argued and debated before, but it's something I've been thinking about a lot lately for whatever reason. 

[sarge12]

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@Anonymous wrote:

True.

I guess another point that I find myself arriving at is that it would be nice if FICO scoring could take into consideration more of the things we know are considered upon a manual review with a human being / underwriting.  I mean, if 5 different human beings can take a 3 minute look at someone's credit report and conclude by looking at it that it's "better" (or "worse") than the corresponding score, to me it would simply make sense for the score to be more indicative of the report.  Because, after all, there are plenty of times (probably more often than not) that human beings are not part of the equation and a computer is making a decision based on a score or limited information.  I'm sure this has been argued and debated before, but it's something I've been thinking about a lot lately for whatever reason. 

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A lot of the scoring and it's relevence was created specificly to take the human out of the decision. Human beings often have personal biases that were harmful in many people being denied credit for non-financial reasons, such as the way they dress, race, or if they have tattoo's. Also, someone would often be approved based on their social class standing...it favored the rich over the less wealthy...even though just because a person is wealthy does not mean they are trust worthy. It is why income is not considered in the score, nor is age, race, or any other non-financial information. In days past the man who wore a suit could get a loan, the farmer was denied.

[Gidgetmom]

Very Interesting read.  

One thought while reading this...Using the two 30 yr mortgage examples...30 yrs perfect payment history and spotty lates through out with 7 years perfect....the 30 yr perfect person had the scoring benefit that comes with that credit behavior for each "7 year increment" as it were; however, the spotty late person suffered the wrath of FICO over  each "7 year increment" until they finally reached their perfect payment history.  To score them more harshly even after "succeeding" does not allow for a person to grow and learn from their mistakes.  Instead it inflicts a perpetual punishment for past behavior. 

Please don't misunderstand...I see where you are going with this.   I believe the reward for the "perfect payment person" came from having access to great credit offers over the 30 yrs. rather than being able to have a 15 point higher score than the "spotty payment person" at the end of the last perfect 7 years for both.

We should all be able to attain the highest score possible, even if some folks achieve it sooner than others.  Just my two cents.

Thank you for a very engaging and insightful thread.

[Anonymous]

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@Gidgetmom wrote:

To score them more harshly even after "succeeding" does not allow for a person to grow and learn from their mistakes.  Instead it inflicts a perpetual punishment for past behavior. 

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See, here's where I see a distinction however.  Past mistakes and past behavior, to me, are two totally different things.  "Mistakes" to me suggest a shorter period of time.  Again, this could be due to something like a job loss, divorce, serious medical issue, etc.  Mistakes IMO are circumstantial, and circumstantial issues are not usually long-lasting.  Conversely, spotty payment history over a longer period of time, say a decade, indicates spotty behavior.  That's not cirsumstantial and is indicative of character IMO.  Yes someone can grow into a different person, but that doesn't happen over night.  The best indicator of the future is the past; If someone possesses a lengthy poor credit past, they're more likely to incur issues in the future due to this learned behavior.  Again, for me, it comes down to the issue of longevity and time which was the main word of the thread subject. 

I think the amount of time to recover from poor credit should be somewhat related to the amount of time that poor credit existed.  I'm not saying it should be directly proportional, but at least in the same league.  Someone being able to recover completely from 20 years of poor credit behavior in the same amount of time as someone with 3-4 months of circumstantial poor credit mistakes to me just doesn't make a lot of sense. 

[Anonymous]

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@sarge12 wrote:

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A lot of the scoring and it's relevence was created specificly to take the human out of the decision. Human beings often have personal biases that were harmful in many people being denied credit for non-financial reasons, such as the way they dress, race, or if they have tattoo's. Also, someone would often be approved based on their social class standing...it favored the rich over the less wealthy...even though just because a person is wealthy does not mean they are trust worthy. It is why income is not considered in the score, nor is age, race, or any other non-financial information. In days past the man who wore a suit could get a loan, the farmer was denied.

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I completely understand that, but I don't think anything I'm suggesting would have any bearing on those factors you listed above.

[sarge12]

BBS...A lot of how scores are computed do not seem fair, and that is true. At first we as consumers could not even know what our scores were. They were not created for us, but rather as a predictive model for the credit issuers. With all it's flaws there is historical data to show that with the current model only 1% of 800+ score holders go into default or serious delinquency. They have the statistics to show that, which is why the creditors buy the scores from Fico. Fair or not, used for what it was designed, to represent credit risk for the creditors, it actually works fairly well whether we as debtors like it or not.

[NRB525]

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@Anonymous wrote:

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@Gidgetmom wrote:

To score them more harshly even after "succeeding" does not allow for a person to grow and learn from their mistakes.  Instead it inflicts a perpetual punishment for past behavior. 

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See, here's where I see a distinction however.  Past mistakes and past behavior, to me, are two totally different things.  "Mistakes" to me suggest a shorter period of time.  Again, this could be due to something like a job loss, divorce, serious medical issue, etc.  Mistakes IMO are circumstantial, and circumstantial issues are not usually long-lasting.  Conversely, spotty payment history over a longer period of time, say a decade, indicates spotty behavior.  That's not cirsumstantial and is indicative of character IMO.  Yes someone can grow into a different person, but that doesn't happen over night.  The best indicator of the future is the past; If someone possesses a lengthy poor credit past, they're more likely to incur issues in the future due to this learned behavior.  Again, for me, it comes down to the issue of longevity and time which was the main word of the thread subject. 

I think the amount of time to recover from poor credit should be somewhat related to the amount of time that poor credit existed.  I'm not saying it should be directly proportional, but at least in the same league.  Someone being able to recover completely from 20 years of poor credit behavior in the same amount of time as someone with 3-4 months of circumstantial poor credit mistakes to me just doesn't make a lot of sense. 

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That 7 year horizon that we have in the federal credit information laws is there for a reason. It is because we, as a society, have decided that people deserve a chance to show they have changed, that they can get their lives together. If 7 years of good payment history is not enough, if they have a perpetual "youth issue" following them when they have fully "adulted" then that is not fair to the individual.

If someone is periodically being late, and they continue to be late now and then, their score is reflective of that. If they stop being late for 7 years, then in my book, they are no longer late. Full stop.

If they were late during a time when they were applying for the 30 year mortgage, then their interest rate would be elevated for as long as they had that mortgage. If they showed good payment history going in to that mortgage, they got the benefit of a slightly lower mortgage rate. The FICO score models by themselves mean nothing until someone applies for a loan, and then at that time, combined with a manual review for the more significant, meaningful loans, it matters as to what sort of terms they will get for that credit.

[Anonymous]

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@sarge12 wrote:

BBS...A lot of how scores are computed do not seem fair, and that is true. At first we as consumers could not even know what our scores were. They were not created for us, but rather as a predictive model for the credit issuers. With all it's flaws there is historical data to show that with the current model only 1% of 800+ score holders go into default or serious delinquency. They have the statistics to show that, which is why the creditors buy the scores from Fico. Fair or not, used for what it was designed, to represent credit risk for the creditors, it actually works fairly well whether we as debtors like it or not.

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I agree with everything you're saying and do think the present system works well.  I would never argue that it's not "fair" or anything.  I just think as with any system in existence, there are always areas of opportunity to make them better.  I see this thread simply as a way to kick around those ideas, even though they more than likely will never happen.