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Fair Isaac: Fair Or Unfair? A Reprise By Bill Roberts
I originally wrote this three years ago. Nothing much has changed. Nothing much for the better that is. A few bad things have happened. Lenders are now requiring a FICO score to get an FHA loan, and they are making these loans subject to a tier system which requires a larger down payment for the bottom tier. This is counter-productive. The people in the greatest need for FHA financing are finding it to be more allusive than ever. So let’s look at this situation:
The Fair Isaac company rates everybody's credit.
They do it for the banks and mortgage companies. Not for us!
It is called your FICO score. FICO stands for Fair Isaac COrporation.
Because of the turmoil in our economy many people are seeing their credit scores plummet.
Is that fair?
The banks can't manage their own affairs. A lot of them are BANKRUPT. Many more are in big trouble. They aren't credit worthy yet they have gotten over a TRILLION DOLLARS of credit from us. The U.S. Government (that's us) has bailed them out. And they want more.
It is time for them (the banks) to ease up on credit requirements to get things going again.
Who are they to demand better credit from us in order to borrow money than they themselves have? Their credit stinks.
Such Arrogance
It is time that we demand Fair Isaac to shut down FICO.
If we are going to "forgive and forget" that the banks are not credit worthy, then they should do the same for us.
Our economy needs credit in order to function. We need to be able to buy cars, refrigerators, and houses. We need credit. We all need credit, not just those with 750 credit scores.
Those arrogant bastards will only lend to you if your credit is unblemished even though they themselves don't have unblemished credit.
America needs fairness in credit. We don't need (or want) Fair Isaac.
Our credit mess wasn't caused by people buying houses without a good credit score.
Our credit mess is the result of our financial institutions behaving very badly and not taking into account what would happen if real estate prices fell.
Well, real estate prices did fall, and as they fell the housing speculators (the flippers) couldn't maintain their investments. They needed prices to go up in order for them to get back their purchase price, their holding costs, their transactions costs, and everything else that they paid.
When prices went down they couldn't get their money back. They bailed out of the market. Prices went down some more.
People who had bought on the upswing found themselves UPSIDE DOWN. They owed more than their house was worth.
As their adjustable rate mortgages (ARMs) reset or recast they found themselves unable (or unwilling) to make their payments. So they bailed out of their houses too.
Foreclosures were rampant. Prices were in FREE FALL.
Everybody has been affected by this situation.
Our economy requires a healthy housing market. It can generate many jobs across the entire spectrum of our economy from home builders (all the trades) to transportation, to all the manufacturers of all components of home building and furnishing, to the manufacturers of automobiles and other consumer goods. A healthy housing market puts many people back work.
Get rid of FICO. Recover the economy. Everybody wins.
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4 comments • Bill Roberts - "Baby Boomer" Retirement Planner • September 29 2011 12:46PM
I do think that it's incredibly inaccurate for those who don't have perfect credit. I can digress on why, but in my experience, there is no clear and understandable formula that the consumer can use to get their scores up. Most lenders don't know how scoring occurs. It's liek the quarterback rating system. Really, if you have great credit FICO is good. If you've missed a payment or so, then you may be sucked into a black hole.
LOL - While I concur with much of this post I also know its wishful thinking that will NEVER happen. To add fuel to your fire I have a current client (so the credit is what it is) 2 of the three bureaus picked up a debt that was PAID over 6 yrs ago and keep posting the PAID collection as active every month and those 2 repositories are 40 points lower than the one not picking up the incorrect data????
How's that for ridiculous same credit same data but 2 pick up the 6yr old paid collection as paid last month and the borrower went from a 740 score to a 698???
I HATE scoring - I can read, I can interpret patterns, I can see debt to use ratio and debt to income ratio and can make a decision on who I am comfortable lending to but none of the banks can??? WOW
Fair Isaac is an oxymoron!
Fair Isaac doesn’t measure your ability or willingness to pay your debits!
Fair Isaac doesn’t measure your credit although it is a portion of it!
Fair Isaac measures you against their own proprietary model and they do it with out regard to your ability and less than 1/3 of it is based on your history of making your payments!
The extremes, both ends of income have major problems with Fair Isaac as does anyone with non-traditional income.
Fair Isaac doesn’t know your income yet lowers your score drastically for to much credit despite a long history of paying as agreed, paying on time.
Fair Isaac doesn’t know your income yet lowers your score for to little credit!
Fair Isaac has replaced "Jim Crow Laws" as institutionalized discrimination!
Just like the "Jim Crow Laws" if you don’t look like the majority of your neighbors your discriminated against! There is no real difference, except ignorance attaches a stigma of disgrace that can’t be seen, so instead of fighting for equality we cope with lower scores!
Jim Crow Fair Isaac hurts those among us with less ability, despite their personal ably to responsibility live with in their means!
All that said, Fair Isaac has done some wonderful things. Of course in the time of "Jim Crow" the same could be said of knowing a friendly banker! Fair Isaac has allowed automated underwriting. Fair Isaac has taken racial discrimination out of lending, it judges you on who you are as opposed to who you know, but you must act like Joe Average!
I’m all for keeping Fair Isaac, keeping it in it’s place that is! I’d let lenders use Fair Isaac (Remember it’s the lender not FICO that approves your loan.) to approve loans. But, FICO scores should not be used to turn down a loan or any thing else! I suggest that before a loan can be turned down that it must be under written by a real live loan officer, who has to state why other than a low FICO!
Make no mistake the only real difference between Fair Isaac and "Jim Crow Laws" is that no one ever voted for Fair Isaac and it applies to allot more victims!
(This is of course the abridged version.)
Bill
I am speaking with my dollars. I buy things with cash since 2006. The only thing I have on credit is my mortgage! Maybe if we all started speaking with cash we could cut out FICO!