Financial Institutions Start To Turn On The Almighty FICO
from the how-does-the-fico-score-score? dept
If you wanted to get a truly accurate picture of an individual's creditworthiness, you'd want to include factors like salary, past payment history, career risk, health risk, family situation and so on. But for the most part, the lending market operates on the assumption that a single numerical score, the FICO score, can adequately synthesize all of the relevant data into a useful indicator for lenders. However, the recent breakdown of the subprime mortgage market has some market participants wondering whether the FICO score is becoming irrelevant. Certainly, it did an inadequate job of anticipating default rates among borrowers on the low end of the spectrum. Critics are also pointing out that the system has only been used by mortgage lenders since the 90s, during which housing prices have steadily grown along with the economy. Thus, the system hasn't been tested during a period of slumping housing prices and significant economic weakness. Already, we've seen new services spring up that try to give more detailed information on the reliability of a borrower or renter, in an attempt to break the stranglehold on the market held by the credit reporting agencies. If banks and other lenders continue to grow dissatisfied by the FICO system, it's likely that more alternative institutions will emerge.Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
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woot
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Your FICO as Extortion
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Re: Your FICO as Extortion
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Re: Re: Your FICO as Extortion
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However; I haven't been late - even a day - on my rent payment for 4 years. My family and job are stable. I know personally I would be almost no risk to a lender, as I will pay the house payment first and foremost..
I've seen people with 'better' credit ratings get foreclosed on - they might pay their credit cards just fine, but they over-tax their income so much they end up not being able to afford any of it. I'm very cautious about any credit I take on. The way I look at it... screw FICO, screw the banks, I'm saving... and I'll pay cash~
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Going in a handbasket
I don't think Fair Isaac is to blame. The FICO score was meant to be a service to lenders to *assist* in the evaluation of creditworthiness. The underlying issues are with creditors and the credit reporting agencies. I believe the recent decline in the sub-prime lending market is due to the obscene ease with which anyone can receive credit. Many people may not understand all the terms and conditions of that credit. They also may have over estimated their ability to pay debts.
TransUnion, Experian and Equifax each have their own 1,000 point scale, while the FICO maxes out at 850. Imagine a person who obtains one of the other three credit scores around 700 thinking it's the FICO score? They estimate themselves to have excellent credit and take on a few hundred-grand more than they should when their actual FICO score is 595, good-but-not-excellent credit?
Jeez, people, pick a standard and stick with it - otherwise all of the systems will fail and we'll be stuck providing 7-years worth of financial statements to the bank each time we get loans. You think the paperwork is bad now?
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They are merely used to establish the interest rate one would have to charge someone to make lending to them an attractive proposition given the risk one takes when lending money.
The lower the score ... the higher the interest rate (theoretically because the lower the score, the more risk the lender is assuming.) You can have a FICO score of 780 and get a 5% interest rate, but you can also get a loan with a FICO score of 2 ... provided you're willing to pay 3 billion percent interest.
If a bank, however, lends money to people with no income verification, no down payment, no requirement even that you be a citizen of the United States, I can pretty much guarantee you that bank's ratio of loan defaults is going to increase.
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Random FICO
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Fico Snafus
Credit scores are only a tool and should not be such a determining factor in anything. The data can be manipulated mathmatically due to variances and standard fluctuations.
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Fico Snafus
Credit scores are only a tool and should not be such a determining factor in anything. The data can be manipulated mathmatically due to variances and standard fluctuations.
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About time...
The big problem is that any attempt at reforming the system would be bogged down by lobbying(read:bribe) efforts by the benefit from such a jacked up system. And who benefits from such a system you ask? Why that would be the upper class elite.
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Against the score anyway
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Fico Snafus X10
Over valuation and increasing interest rates and predatory lending practices have done more harm than any FICO or other scoring model could ever imagine doing.
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FICO and the Mortgage Industry
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FICO and the Mortgage industry
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FICO and Mortgage Industry
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