@TB wrote:
To Varsity_Lu and anyone else that replies to my opinion about how the FICO scoring is applied. I appreciate the information that you think you know. And unless you actually are a FICO employee or worker, how could you possibly know for sure what you are stating as to how FICO works. My reply wasn't an attitude as you say! It was just fact! I still maintain what I said when I first started this post. The FICO scoring should be on two things only. One, if you always pay on time. And two, if you never default. That's it. The system just wants to make money off of the ridiculous amount of money they charge for interest.
Fico doesn't make money off whether someone is paying interest or not. They make money off lenders by assessing the risk of default by potential borrowers.
Never being late on a payment would be the same as never defaulting, no? However, even though someone has had a long history of on time payments, that's only one part of the equation. If that same person starts carrying large balances, statistics, and historical data points show they also have an increased likelihood of defaulting in the future. So, the more someone's reported utilization goes up, the more their scores will go down.
For example, take someone that has a perfect payment history, maybe always pays in full to avoid paying interest, but gets a shiny new card with a $20k limit and 0% for 21 months so they decide to... go on a dream vacation that costs $15k. That puts them at 75% utilization on that card. What this does is:
- Gets them a score penalty for the utilization on that card that is near what's considered maxed out.
- Gets them a penalty for highest individual card utilization.
- Depending on total available credit, may also push them above known aggregate utilization thresholds that draws more scoring penalties.
The two biggest factors of your score are payment history, and utilization. While it's great to have an impeccable payment history, it's also important to always have low reported utilization (interest free or not). Reported revolving utilization is also something that doesn't have a memory (unlike late payments) so while someone might get dinged for having a higher reported balance, it's also something that's easily manipulated by paying balances down. As balances go down, scores go back up.
Is it a system without flaws, no. Is a system that is always fair to everyone and every situation, also no. But, it is a system that... as a whole, has done a good enough job at assessing risk for such a long time that lenders overwhelmingly still rely on it when it comes to making lending decisions.
While no one here has the exact secret sauce recipe, there is a plethora of information and data points that prove to be facts about many aspects that affect Fico scoring. These are all things that aren't conjecture, or things people think they know. They're well documented facts based on 10s of thousands of data points within this forum alone. You can't change the way Fico scores things, but you can educate yourself to a great degree on how things work based on what countless people have contributed here.
