Credit FICO scores are a scam

Miscellaneous and Personal Stuff I Must Share
1

and need reorganization and/or regulation or destruction…

Okay…just started viewing my scores last week and a couple of things.

First, there was a collection account for five whole dollars on my account! It was dropping my score and my dispute got it removed. Plus 39 points for that one! My score is 39 points better because I no longer allegedly owe 5 dollars on a 4 year old account! Oh the horrors should some company foolishly loan me money should my old staggering debt come back to haunt me!

Then I checked to see what else was dragging my score down. #1 was the fact that I had no major credit cards. I use only debit cards. That good right? No. I should have a major credit card, so I apply.

That creates an inquiry which drops my score by 15 points! Well, assholes, you told me to get a card! Why punish me?

Then a revolving account updates an amount. I currently owe zero, but it reported when I charged 500 whole dollars three weeks ago and it just posted now. I paid three days after I charged it, but it reported the 500. That drops my score by 9 points.

I owe less now than I did before but my score drops. This isn’t 1974. Why can’t these balances be updated instantly? Why would it matter over these trivial amounts? Why do I have to pay to see these changes?

When credit reports affect our job prospects and our financial health, we should have far better regulation of this. Suggestions?

2

Sorry, no suggestions, but i feel your pain. My FICO score is decent (785) but I can’t get financing for a goddamn can opener because one thing it doesn’t indicate (but a credit check apparently DOES look for) is how long you’ve been at your current residence.

I had to move 4 times in 3 years. 3 of those moves were for reasons beyond my control- such as the owner of the place I was renting selling the property. I’m getting punished over eviction notices that don’t even have anything to do with my own rental history.

Another, smaller annoyance was upping the limit on my Best Buy credit card. The first time they did it they raised the limit. Awesome! I’ll do it again, i want the limit to be high enough to cover a TV or computer purchase (so like a 1200 dollar limit). I do it again and it says, “Boo, you can only raise your limit every 6 months.” Later I found out I got dinged a few points for being denied an increase in my credit limit :mad: WTF, did they not see that I was GRANTED a credit limit increase not two minutes earlier?!

3

The changes you’re describing are small, and they’re related to very reasonable causes.

You had a collection account – the dollar amount doesn’t matter. A man who will default on a $5 debt will do it on a $5000 debt. When you disputed the charge, you demonstrated that you are, in fact, not a deadbeat but a shrewd money handler; it is that, and not the trifling $5, that boosted your credit score.

You had no major credit card, and thus no history of payment. You now have a credit card, but still have no history of payment. You do, however, have more credit available to you than you did before (with no history of responsible management). Until you have established the HISTORY, you are a worse credit risk than before. But only 15 points’ worth, because most people who get credit cards do pay their bills.

As for why FICO doesn’t instantly update your score every time you pay a debt – daily or continuous reporting of payments would require costs in infrastructure and personnel that would not add significantly to the bottom line, nor to the utility of credit scores as a predictive tool. Perhaps some large lenders will make that investment, but it’s a judgment call. Bear in mind that creditors report to the agencies (at their own expense), not directly to FICO. FICO’s relationship with the agencies is thorny: Experian no longer reports FICO scores to consumers, the three agencies have started their own scoring service, and FICO just lost (sort of) a lawsuit over that. I’m sure the agencies don’t send their data to FICO for free.

You have to pay for seeing these updates because selling that information is how FICO makes money. If it were entirely up to them, you wouldn’t see those scores at all – their clients are lenders, and routine access to credit scores by consumers leads to an obsession with minutiae and attempts at gaming the system (IOW, exactly the kind of behavior that you’re displaying) which screws up their statistical models and reduces the value of their product. They’ve joined the feeding frenzy for selling consumer credit scores, but whether that’s due to due consideration of the changes wrought by the information economy, or just a short-sighted marketing decision that’s going to hurt the consumer credit market (and consumers) is anybody’s guess.

Incubus, your attempt to maximize your credit line is exactly the sort of thing creditors worry about. Statistically, a history of aggressive credit-seeking is associated with excessive borrowing, which leads to defaults. The fact that you were granted an increase two minutes earlier is a BAD thing, but you only got dinged a few points because you only did it once.

4

I disagree strongly, a person is far more likely to default on a large amount than a smaller amount. Disputing a charge doesn’t indicate whether or not you are responsible, indeed one of the biggest losses in credit cards is the ability to spot merchant errors, and dispute them whether or not the money is owed. This says nothing about one’s character

The real issue is there is no weighting to the system. It’s like saying if I pinch someone I deserve the same punishment for knocking his tooth out.

I don’t agree with the OP categorization of FICO as a scam, and I think the examples he gave indicated that he doesn’t either. Rather FICO isn’t a reliable representation of one’s ability to manage credit.

But in the end it’s the only game in town, fair or not, so you have to learn to play by those rules.

5

I don’t know. It makes sense to me. If I have a friend who ignores a $5 debt to his friends, you think I’d trust loaning him $5000 dollars?

As for getting the credit card account, it will temporarily drop your score but, in my experience, it’ll go right back up after just a few months.

6

its all a a scam…:rolleyes:

Took 5 years to get score from 630(no credit but a paid off car loan) to 780…soon to be 830 after payoffs. All to buy a House after selling my Double mobile I own.

I had less than one year to go…then LOL…

1: Housing market collapsed
2: Economy went to hell, causing job layoff
3: Unemployment income insufficient to pay bills
4: Employers hire for way below scale or ship job overseas
5: Employers uninterested in experience
6: Unemployment stops sending checks for some unknown reason

End result…

Credit score 500 everything going into default.
I’ll never get a loan for a loaf of fucking bread for another 10 years now.

I didn’t make the world go boom, but I am paying the consequences for it.

Like i said…it’s all a scam…:rolleyes:
(p.s. cant sell home I owe 3 months lot rent now and almost evicted)

7

They could. But the FICO score isn’t about your instantaneous credit health, it’s more of a moving average of your creditworthiness over time. Instantaneous updates would actually make it a poorer predictor, since you could game the system right at the time you needed credit.

But the bigger picture is this: Some of the things you described in your OP raised your score, and some lowered it, but let’s just ignore direction and take the absolute value of each change: 39 + 15 + 9 = 63 points, including a defaulted payment.

For most people, 63 points plus or minus would have almost no effect on their creditworthiness, maybe a quarter point of interest on a car loan, say. Ignore that 39 point default, and you’re talking a whopping 24 points, which would probably have no effect at all–that’s within the error band between different FICO computations.

You’re looking at the noise in a system with a several hundred point range. Don’t sweat it.

8

It doesn’t sound like a scam to me. Based on what you described, you are a significantly higher credit risk than you were before, and the changes in your score reflect that.

It probably wasn’t your fault that you lost your job and found yourself in a shitty situation, but that’s irrelevant. A credit score is not a moral judgment, it’s a risk calculation. Would you give a loan to an unemployed saint with a boatload of other debt which he can’t pay?

Me either.

9

Inquiry = temp lower score because to future potential creditors, you could have just taken on a 100k loan that hasn’t appeared on the credit report yet.

That makes sense.

If I am Bank X, and you want my new credit card, and your report has an inquiry from Mercedes Financing from two days ago, I want my scoring model to factor in some amount of risk for that.

Just because you don’t understand a system doesn’t condemn it to hell. Oh, once this system of credit and scoring and risk evaluation was tossed out the goddam window by the mortgage industry, the whole fucking country lost its fucking shirt. Best system for lending money: credit reports, scores, risk eval, etc. Once tossed out the window, the economy goes with it.

No… YOU have all the answers.

10

You’re not disagreeing with anything I said; I said that a person who defaults on a small loan is no less likely to default on a large one – the point being that the small size of a default does not mitigate the risk of lending to that debtor.

I didn’t say anything about character; I was pointing out that the hit on one’s credit score from a default is erased (or nearly so) by successfully disputing the claim. A correctly configured loan is not less likely to be paid on schedule by a legitimate disputant than by a non-disputant.

Credit scores are not punishments; defaults are punishments. If you punish (default on) the pincher ($5 creditor) exactly as you would a jaw-breaker ($5000 creditor), you are an unfair judge (an unreliable debtor), and no plaintiff (creditor) has any reason to trust you.

It isn’t a “representation of one’s ability to manage credit” at all; it’s a measurement of the probability that you’ll pay back a loan. The scoring agency doesn’t know you, and has no idea what effect your individual circumstances have on your determination to pay your bills; they only know what other people with similar debts have done, and they guess that you’ll do the same.

Actually, no you don’t. The scores are more accurate and more reliable if fewer people know about it, and most people with bad credit are better off if they can’t borrow money.

11

A FICO score is an I Love Debt score.

I haven’t used credit cards in more than two years and we are working hard to pay off our debt. You don’t have to worry about your credit score if you don’t borrow money (and yes, you can get a mortgage without a FICO score. It’s called manual underwriting.)

12

Here’s another update: My score went down another 9 points because I got another inquiry. I opened a checking account at the local credit union where I work. 9 points for what exactly? I opened a checking account, I didn’t apply for credit! But lenders look at that, and I get another -9 for applying for credit that I never applied for…It might not be a scam, but it’s a joke.

13

A checking account is credit, in that you can write checks you can’t cover, and some accounts have overdraft or regular draft that becomes a revolving debt or an equity line of credit debt.

Score hit: It’s temporary and based on real risk analysis. It’s good businesses. Read my post.

And, again, when mortgage lenders adopted your principles in the mortgage industry collapse, the country went into the toilet. Amazingly real-world experiment for you! Kinda should make you re-think your attitude.

14

I check my score about once a year. I had no idea people were checking as often this or even careing about 9 points here or there. I just bought a house and was only in my new job about 2 months, didn’t have a problem. Also bought a new car in the middle of buying the house, again, no problem. and 0 % interest on the car.

15

This is WHY I don’t care for how we’ve structured credit and credit reporting. Although there is some competition between companies, we are beholden to this concept of a credit score.

I behave extremely responsibly with money, yet I don’t have great credit because (the bank tells me) I don’t do the typical things I’m “supposed” to do that would improve it, like using credit cards as previously mentioned. I also have canceled cards due to poor service, and that reflects badly on MY credit!

This means that although I’m a good loan risk (IMHO, based on the fact that I’ve NEVER missed a payment on ANYTHING), I’m going to have a hard time obtaining credit. This happened when I bought my house, and made the process much more difficult.

Let’s also not forget that the credit reporting businesses had to be forced through legislation to provide the scores to consumers periodically. Hell, when going through my mortgage the bank was reluctant to check my credit for me because the very act of doing so would adversely affect it! That type of secrecy is just bizarre in my view.

I’m sure the industry feels that their internal rules work very well for them. Perhaps there are some internally consistent reasons why there needs to be this type of secrecy. But that doesn’t make it good, or right. This is a flawed system.

16

I don’t usually obsess about it. I’ve been irresponsible with my finances in the past and I’ve been getting them cleaned up, so I signed up for the credit monitoring services so I can see what I can do to improve my score. I do what it says and my score goes down.

Re: checking accounts. I have applied for them in three states over a period of twenty years. NEVER has one pulled my credit report. I have had them run a soft pull just to verify that I have given them legit data, but only in the FICO world is a system where I give someone money on deposit and am allowed to withdraw that money at my convenience anywhere near being an “extension of credit”

17

Dude, relax. Those are all temporary hits. Your score will bounce back up within a month or two and be higher in the long run.

Here’s an example from my life. Many years ago when I was slightly more cavalier about my finances I had some minor problems with my credit. My score was in the 650s, I had few late payments and an outstanding balance of about $5000 which I had riding for about two years and a total credit limit of $5000. I was maxed out. The FICO credit score simulator said paying down my credit should eventually get me back in the high 600s.

I came into $5000 so I paid off all my credit card debts at once. Now, one would think your credit score should go up right? After all I just paid all my debts. Nope. It went down another 20 points to the 630s. And then, with nothing else changes, popped up to 670 in the next month and 680 or so a few months after that.

So just wait a couple of months. Your scores should go up as these are all temporary dings.

18

There are tens of thousands of lenders. It’s** those tens of thousands of lender who make decisions.** They all opt to use scores (or damn near all of them do). The have their own risk models, or they pay for ones, or they consider the score among a variety of factors.

You need to understand that the methods they use to mitigate their risk is up to them… by the tens of thousands. Credit Reporting Agencies store information.

Again, you happen to be questioning a system that mitigates risk very well. When the system was abandoned for some other untested system, we collapsed the economy. Stop and think about that for a minute. When lenders behaved as you wish, we wound up on the brink of disaster.

Unfortunately for you, the whole value of the credit reporting industry and the scoring models was given a boost and one large-ass dose of respect recently. You are picking just about the worst time in history to make your point.

19

Then please explain why a person like me, who has never missed any sort of payment, doesn’t have an absolutely stellar credit rating.

Wait, I can tell you. Because a vendor’s clerical error caused a payment of mine to go into collections. Although it was their mistake and they admitted so, this has become, as far as anyone can tell me, a permanent black on my credit score. My accountant and the bank have said it’s pointless to try to talk to the credit rating companies, and to just wait and hope it goes away in time. My lawyer says the vendor cannot be sued because there was no intent to defraud or cause me harm.

This happened before the companies were forced to make three reports available to consumers. So the information was pretty much on double-secret-probation, and I didn’t find out until I tried to buy a house. So here I am, a person who has repaid (on time, or early) everything I’ve ever been loaned, yet I have a bad credit score because of a computer glitch.

I think you’re making the point that the system works in a macro sense. That may be, but it is most definitely at the expense of people like me. I call that a seriously flawed system.

20

Have you contested the item to try to have it removed from your credit report? If the vendor has admitted error they should remove it - which would immediately boost your score. Also, as the debt gets older, doesn’t the recentness (or lack thereof) affect how badly it dings the score? I’d think a 5 year old debt would have less effect than a 1 year old one.

I do agree that the FICO model fails to consider some very good evidence of creditworthiness - like a person’s general billpaying habits (as I understand it, if you fail to pay your utilities etc. on time that can get reported as a negative, but I don’t think that you get a positive if you do pay on time).

It’s funny how the financial institutions are whining about the FICO criteria being transparent allows people to “game the system”. They want it all on their side, with us poor little money pits - er, clients - just there to do what we’re told and pony up our money blindly and “thank you sir may I have another”. Gaming the system may be easier now that people have an idea of what’s going on, but I really doubt that such gaming will make a massive difference in a score, more than 50-60 points.

It also sounds like some of the things the OP described, which have resulted in temporary score drops, most likely “wear off” after a couple of months and have little to no effect after that time. Try viewing it as a longer-term thing, and don’t stress over short-term bumps in the figures.