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Funny caption pic!
With all the recent stuff going on and on about credit, its time Fair Issac lives up to his name and disclose that credit score formula! I'll trade him the coca-cola formula...
Funny caption pic!
With all the recent stuff going on and on about credit, its time Fair Issac lives up to his name and disclose that credit score formula! I'll trade him the coca-cola formula...
It's somewhat ironic - no maddening - that a number that is so important to so many people is determined by \"proprietary\" methods. Instead of just saying, \"Here are actions you can take or not take that will help you pay less for a house or a car.\", they say, \"We have this magic formula that will determine your interest rates but we're not going to tell you what it is. Instead, you have to go to blogs and use 3rd parties to help you try to figure it out.\"
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@johnfrombrooklyn: There are 3 different companies that use similar formulas to calculate the score. If they were all the same, what would be the fun in that.
I'm sure it wouldn't be terribly hard to get them to tell you, either. It's all relatively arbitrary and highly debatable as to *the best* method of doing it.
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@snowburnt: Actually, there are three major credit reporting agencies. Fair Isaacs used to be one of them and they realized there wasn't a ton of money to be made in all of that - all three utilize FICO scores on top of their credit reporting.
FICO has quite the racket going. The three bureaus are trying to muscle them out with VantageScore - but no one's really buying it right now. FICO has the long-term data and the confidence. Plus, FICO has responded well when people have been caught gaming the system. (You used to be able to \"fix\" credit scores by being an authorized user on credit cards - this is no longer part of your score and that scam was shut down.)
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@johnfrombrooklyn: I suppose the logic is that if you knew exactly how the score was calculated you could try to do things to \"game\" the system and artificially increase your credit score. The bottom line is don't maintain a balance, pay on time, keep your oldest cards to show credit history and don't max out your CCs. Other issues have only minimal impact on your score. Agreed however that some sort of FICO calculator would help. If people could enter their information and see how paying late or paying on time could impact their score, it might have a huge impact on how people look at credit cards.
As an example of why they should release their formula, FICO needs to look no further than Google. They had a proprietery formula for calculating google rank. The information on how this was calculated was released in a patent application, but it is still difficult to game the system (on a long term basis). The bottom line here is provide good content on your website, place applicable keywords in your page header and your rank will increase. Other issues will haveonly minimal increase on your rank. The net result is a search engine that is improved and better for everyone.
@Rachacha: Also, if they tell anyone the formula then a competitor or debtor company could calculate the number themselves and sell it or use it themselves.
The number is supposed to be a statistical representation of the chances of you being 90 days late in a year. Probably costs them millions of dollars to develop.
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@johnfrombrooklyn: It seems to me that it would be VERY EASY to sue Fair Issac and get the formula.
Recently, someone sued the makers of the breathalyzer tests, and won, requiring the makers to open up their proprietary software code for everyone to pick apart.
Suing Fair Issac would be similar, IMO.
IANAL, though.
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@techstar25: I don't think it would be that easy at all. It would equate to you suing coca cola to get their formula more so then the breathalyser.
@johnfrombrooklyn: I know, what a way to run their business right? They should all share their methods therefor eliminating the need for themselves. It's not the only way to determine credit worthiness, but it's the most common... Also the main/basic factors are really no secret, don't default, don't have outstanding collections, don't max out your cards, pay your bills on time, and have a history of credit usage to reference? Is it really that tough? Seems pretty common sense to me.
On another note their corporate headquarters are all of 6 floors above my office.
@morgasco: I'm doing all of those, and have been for years. But it sucks when the card companies come along and slash your limit to only $5 above your balance, and THEN you look maxed out and your FICO score tanks.
I called them and was able to get the limits restored, but not before my FICO score took a huge hit. It certainly won't go back up as fast as it dropped.
The FICO system is really a bunch of bullshit. We shouldn't need a *number* that influences our life so much. It really does punish those that pay cash for everything too. It looks like I have a short credit history (7 years is short?!) because I spent years paying for everything in cash.
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@morgasco: \"what a way to run their business right? They should all share their methods therefor eliminating the need for themselves.\"
But should a number that is SO influential in SO many areas of a person's life even be in private hands? If you are going to be defined by this number and you have literally no choice about it, I'm not sure that should be a proprietary, protected business secret. Something THAT important and that defining should probably be subject to various equal protection and due process requirements so that citizens have a way to control their lives ... and if we've learned anything from the Consumerist, it's that the credit bureaus are notorious buttmunches about that kind of thing.
Sorry, this isn't very coherent or coming out the way I mean it to. Someone should clarify it for me. :)
@Eyebrows McGee (popping ~May 29): Well.. It's not like it started out as one of the main ways to determine credit worthiness. So just because they proved their method to be pretty reliable, and put time and money into developing these methods and the technology behind that they should now have to share it, or they should be forced to share the information? That seems...wrong. I understand where you're coming from though.
@morgasco:
Anyway, we really have no role in this. The FICO score is something that Fair Isaac sells to lenders, who are the ones making the credit decision.
@NeverLetMeDown: Of course we have a role in this. It's information about us. My score is a measure of my behavior. FICO does the calculations, and whoever wants to can buy the results, but it is my behavior, and I should have plenty of say in it.
@oneandone: The information is about us, but the statistical formula is theirs.
In theory you have something to say about the info on your report because you allow your debtors to report it in the users agreements. But the formula is THEIR interpretation of the results. You don't have a right to tell them how to interpret your info.
1. The information they're using is information that you've voluntarily provided by getting credit products.
2. You have no control over a third party's right to have and express an opinion about your behavior, unless (a) the information being disseminated is damaging AND (b) it's false.
@NeverLetMeDown: one's point is that you can control your report by being a good debtor combined with your own sub points 2a and 2b gives you solid control over what is in your credit report.
What good would it be if you could put lies about yourself in there?
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I would like to see a score which is instead based upon:
-A person's net worth
-Their debt-to-income level
-Their ability to pay off past debt (Yes, the FICO does this)
-Their basic understanding of personal finance
Basically, not an \"I Love Debt\" score, as the FICO has been called; but more of a meter of that individual's overall financial well-being.
But I'm sure that such a thing would be considered too invasive, in spite of the recent news that CCC's can build a psychological profile based on your purchases.
@Fist-oâ„¢: Most larger lending institutions already do this - and probably include other items you'll never know about as well.
Most lenders don't rely only on FICO for decisions. FICO probably determines rate since it's an easy soft-pull or a number an auto-dealer can get quickly.
What probably drives the bulk of your decision is an internal score that is a proprietary formula the lender builds based on their own portfolio performance. You'll see items like debt/income, amount financed, payment histories on account types, specific delinquency types, specific debt types, and other factors baked into these scores. They won't run in parallel to the FICO score - they'll be a more refined score that likely runs on a different scale.
Oh - and then there are the humans that look at a portion of the applications and credit files. Don't forget them!
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This is why it is more important to ask why FICO is calculated rather than how.
I think it's pretty obvious that it is at least partly to give banks an excuse to screw people. Creditors, particularly credit card issuers, are the only parties who benefit when a debtor's financial circumstances remain constant, but their FICO score declines. The fact that creditors have the power to lower someone's score can't be coincidence.
@TechnoDestructo: It is also used by banks to easily look at a potential customer and GRANT him credit. The use of FICO is often used as an example of giving credit to MORE people.
It also took away some of the actual thinking banks had done, I think they depend to much on FICO and not enough of other things.
@TechnoDestructo: People complained when banks gave secured loans to people who didn't deserve it who then defaulted, now you want them to give unsecured debt to people without any gauge of whether or not they will default?
The only way they really benefit is they can raise the rates on a variable loan. If you have no balance the rates don't matter.
Who should have the power to lower (or raise) your score if not the creditors? FICO is like Yelp for lenders. It's a 3rd party that keeps track of good and bad reviews for people so that banks know who to lend to. What good would it do if you could raise or lower your own score? Creditors can raise or lower it (INDIRECTLY) because they're the ones who know you debt history.
It's not perfect, but it works to an extent. It mainly screws people who don't understand it or who screwed themselves.
@Fist-oâ„¢: You can infer a lot about a person based on the different aspects of their credit report, and therefore, to an extent their credit score...I think these aspects are the goal of the credit score anyway...I think you'd need 5 or 6 different credit scores to really get a well rounded view of things.
if you look at every aspect of the report you can get an idea of their net worth and the debt-to-income level.
I'm not sure how outside of looking at all of the above factors (paying bills on time, utilization of credit, credit history) you can tell if someone has a basic understanding of personal finance. Unless you want to make everyone pass a test before letting them start a credit history, and I can only guess that test will be as valuable as a driver's license test.
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@Fist-oâ„¢: Your suggestion makes a lot of sense, but it requires more financial info than most people are willing to divulge.
Since I don't want to tell potential creditors this stuff, they have to guess what kind of a debtor I'll be, based on my prior behavior. However businesses that apply for loans are expected to give this info as a regular course.
It is not a \"credit score\" but a \"debt score\". The rating agencies are not looking to help lenders find people who will be good credit risks, they are looking to define who will be most like to to pay 3000 dollars, over 20 years, for a 50 dollar toy.
If one with no credit history, but a great job, and long standing on time rent payments were to borrow money it is clear it'd be payed back right away - no profit, possibly a loss when fees and so on are accounted for. My neighbor who has 5 cards going, balances on all, and has been running them for years is a cash cow. Her 500 dollar loan, with compound interest, turns into thousands in profits. The \"credit score\" should be called what it is, a \"debt score\" and is not to benefit the borrower in any way what so ever, it is there to maximize profits by weeding out people who will not pay back the money and those who will pay it back too fast and keeping those who \"have a taste for credit\" and don't mind paying forever.
I wonder what gives the reporting agencies the right to collect private information on me, via my copyrighted name, and then SELL that information at a profit without notifying me or paying me? This smells like one of the best class action lawsuits of all time.
Your post is utter and complete nonsense. Don't believe a word of it. Risk, to lenders, is expensive, and they are quite happy with people who pay their bills on-time (including cc), or even early.
@zarex42: ...But then, there's the whole \"Deadbeat\" thing, where CCC's often refer to customers who pay off the card / never carry a balance as a \"Deadbeat\". Risk *is* expensive, but the most profit comes from lending money to the person who is JUST below the \"Default threshold\". (I'm theorizing here. I'm not a financial professional, though I play one on blogs.)
Some lenders also recompute FICO scores for some classes of loans, most notably auto loans.
When I bought a car the other week, my auto adjusted FICO score was 30pts higher than my true FICO score purchased from Fair Issac.
@Jesse: The lenders don't recalculate - FICO sells these different models. They have general models, auto models, mortgage models, credit card models and a few others - within those models, there are different versions.
Each of those are specifically designed by FICO to offer a product to a lender that is designed to predict likelihood of repayment on a specific product. So, on a FICO Auto Score, it will weigh automotive credit and secured credit repayment more heavily than unsecured debt.
Don't buy into the myth of a single score - it doesn't exist with FICO. There are a range of FICO scores and you'll never get to know them all - any service selling you a peak at your score is merely selling you a general score. The odds of a lender reviewing you on a general model are pretty slim.
@Jesse: That's very interesting. I wonder if they would do such a thing for a mortgage as well (I certainly hope so!)
@Fist-oâ„¢: I'm not a mortgage broker but when I bought my place I learned that there are a few different types of mortgages (someone correct me if I'm wrong)...there's the stated where they take your income and credit score and give you a loan, then there's the fully documented loan where they look at your full credit report, and you have to provide documentation on everything (pay stubs for the past few months, bank statements, info about other loans, info about other assets, you tax filings for the past couple years) and the bank's underwriters will give you a rate based on their calculations rather than FICO's. Usually you'll get a better rate through full-doc and I'm not even sure if they'll let you do stated anymore.
Your FICO score is more to give someone a snapshot for a quick decision about a relatively low risk credit line (credit card or car loan).
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Stop worrying about your damn number and concentrate on paying your bills on time and reducing your credit utilization!!
@NeverLetMeDown:
Credit scoring is successful (not to mention essential) for lenders. Borrowers don't need to know their scores, only whether or not there are things they should do to improve their creditworthiness.
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Even if your reduce your credit utilization to zero the CC companies can still screw you over. I carry no balance and when BOA decided to reduce my available credit, my credit score dropped almost 50 points in a month.
@Gtmac...and sometimes y: Were you still using your card on a monthly basis? I know you said you carry no balance, just wondering if you had usage.
@Gtmac...and sometimes y: Well, they were able to do that because you had a credit card with them.
How would not having one at all affect it, I wonder?
@Gtmac...and sometimes y: i'm not sure paying off your cards every month equates to a zero credit utilization rate.
I found recently that the FICO score is BS, complete and total garbage. It tells credit card companies if you're going to miss payments, and if you're going to default, they love both of those types of consumers.
It penalizes people with a ding on their credit scores IF they pay off their debt early.
WTF is that all about? I pay off a credit card, ask them to close it so I do NOT incur more debt and my credit \"score\" suffers because I'm being responsible.
FICO is a private company, WHY are we allowing a private company to be used that does NOT share its algorithm (it's a company secret, everything you read about \"how your FICO score is calculated\" is speculation because everyone has their own theories) is proprietary. If for some reason THEY decide to change their criteria or there has been some major flaw in their software and no one found it, then we would all be screwed.
FICO should be banned. The whole idea of credit scores is biased and should not be used.
@sanjsrik: You're entirely wrong about what credit card companies are looking for in a customer. If you have a credit score of 300-500 it can mean a lot of things: you don't have much of a credit history or you default and miss payments. They do NOT love those customers. Sure they can charge them 40% interest, but if you're not going to make a payment, they're going to have to write off that bad debt. 9% interest on a balance that gets paid back is way better than that same balance being written off as a loss in taxes (a deduction is not 1:1). Additionally they make money on transactions. The longer you have a credit card, the more you use the credit card, so they make money every time you use it AND ever time you pay it back.
It may be responsible in your book to close a credit card after you've paid it off but it could raise flags if you open a revolving debt, pay it off and then close it. It could be an indication that you can not manage debt because you have to close it to prevent over use.
You can't assume everyone is evil, sure they're driven by profits but you want fast, unsecured credit and they've found a way to deliver, as well as ensure that a high proportion of their clientele deserve it and use it properly.
I wrestle with myself over whether or not FICO should be a public agency. After dealing with the IRS, Social Security and working in the public sector for a while I've determined that the government is tremendously inefficient at best and making this public would be far worse than the current system...Some oversight is more than appropriate and called for but turning FICO into an agency would be an absolute nightmare.
I disagree with your assessment, but then we're allowed to disagree...
I think that credit card companies WANT people to miss payments, sure, they have defaults, but then they get to collect from the government when they have enough defaults. I used to work at Bear Stearns, the banks have a great safety net, they can't fail or else we all fail. Same goes for the credit card industry. Have you actually read the language of the new bill going through congress, sure if you interpret it one way it does help some consumers, but in the end, it'll just mean a rewrite of some of the credit card practices to get back to business as usual.
For example, where it says they can't change the terms of our credit card agreement, well, sure unless...
Section 12.7B:
\"No creditor may change any term of the contract or
agreement applicable with respect to any credit card account of the consumer under an open end consumer credit plan until renewal of the contract or agreement except for the specific material reasons, and subject
to specific limitations, that are contained in the contract.\"
The last part of this is what was the loophole, all they have to do is send out new agreements and renew people from that point forward. Nothing in the bill stopping them from renewing every single person who has a credit card with a new expiration date and claiming it's for other reasons and inserting that they are allowed to change the terms of the agreement at any time as this bill states \"except for the specific material reasons, and subject to specific limitations, that are contained in the contract.\"
@sanjsrik: Miss one or two payments and they'll love you because they can jack up your rates, default and they break even. In recent times breaking even==loss.
Regarding the bill, did anyone really expect huge changes? It's politics and banking. In politics you try to make sure everyone thinks they win. In banking you kill your own mother to win, PR be damned. Banks have some of the smartest people working for them to make sure that they keep ahead of the 8 ball. I'm not worried for the banks, I'll just try to keep my status quo and hope it doesn't hurt me too badly.
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I am completely at a loss with this FICO bs. I recently paid off my car loan and my score went down 15 pts. Then my CC company slashed my available credit for an 8 pt ding. I got into some trouble with CCs years ago and I worked really hard to build my score. I have no idea how to get it back up. It seems like applying for another CC is a bad idea, but I'd like to have a better score when I try to buy a house in the next 2 years. Damn you, FICO!
@Crabby Cakes: 15 points is not that much to cause banks to decrease your credit limit. What probably happened is the banks dropped yours because of the market, they have been doing that many people lately.
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@Crabby Cakes: Buy the house. Lots of people and banks want to sell you one at a great price. Correct me if I'm wrong, but after a few months of on-time mortgage payments, you should see the FICO go up.
@Crabby Cakes: I would honestly not worry about FICO for buying a house. I suspect (as Snowburnt remarked earlier) that a savvy mortgage lender will only look at the FICO as part of the equation. I agree that applying for a CC simply for the purpose of improving your chance to borrow for a house is not worth it.
Fundamentally, Fair Isaac is successful because their methodology works: the scores _are_ predictive of risk of default. If they weren't, then their customers (i.e. lenders) would stop paying for them. While the methodology isn't perfect, it works with a decent sample size.
There are certainly people who say \"I do , and I've never missed a payment in my life,\" but that's kind of like saying that research showing cigarettes cause cancer is garbage because your 98 year old great-uncle has smoked 2 packs a day since World War I, and he's just fine.
Interestingly, one of the ways Cap One has been so successful is by using their own in-depth models to take a consumer's credit report and recalculate what _Cap One_ thinks their creditworthiness is. Then, they can target customers who are actually better tisks than the popular models show, and avoid those where the popular model underrates the risk.
When \"a proprietary secret of the Fair Issac corporation\" controls so many people's lives, something needs to change.
Lookit, you're asking someone to loan you money.
It's their money, their risk, and if they want
to use a 'magic 8-ball' to decide with ... it's
their choice.
On the other hand, you can go elsewhere for the
loan (credit), or not.
Let's come up with our OWN \"Credit Scoring System\"!
FICO and the Credit Score formula suck.
There is no allowance for Disputes.
If I dispute the Bill (because we know that all of those Worst Companies NEVER make mistakes) - I am not going to pay the bill - and then my credit score tanks.
Yeah That sounds really fair. Seriously, Comcast overbilled me for months, mortgage lender scewed up my payments and escrow, utility overcharged me - and all of these took months to straighten out.
And then there is the Health Insurer who makes errors (or lies) and refuses to pay - until you fight with them for 6 months or years. So you get sent to collection by doctors and hospitals faster than anything.
The consumer has NO CHANCE to maintain a decent FICO score nowadays.
I propose to Congress that all activity in the last 18 months and for 2-3 years forward - that FICO scores are not utilized or changed. And they really should not be used for Employment screening.
Too many of the Credit Card Banks and other Corporations caused massive layoffs and now they get to ruin your FICO Score too???
@pal003:
Honestly, that's probably relevant data from a lender's point of view. If you fought in the past, you might fight now, and I, as a lender, would prefer someone who just shrugs and pays.
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Thank you B of A for cutting my credit limit in half on my 10 year old card because \"I was not utilizing the credit they gave me\"
.... you just fucked my credit, you have to be stupid to max out a 27K card, since I didn't max it out, I am not worthy.
When I called to bitch, the representative tried to tell me that having less available credit was better for my score because I was not as tempted to use it, I called bullshit, but there was no real argument as for how credit scores are calculated.
I won't cancel my card, since i have had it since the 90's, but I will buy a sandwich on it once a year and pay off my card the next day, as much as I would love to cancel it, just to piss of BofA, but is using it once a year better? I wish it was still an MBNA card, B of A blows my nutz!
wait, your score gets bumped up with credit card debt? or just having a credit card?
@Elcheecho: From the NYT article:
So it does take into account how you handle debt, but it's more of a payoff routine rather than just having it.
Also it says it's better to have a secured debt like a mortgage or car loan for that 10%
@Elcheecho: The NYT article does not support that \"+ credit card debt\" as far as I can tell.