FICO score calculations changing

[redheadbaker]

www.marketplace.org/2020/01/23/fico-credit-score-changes/

The people who figure out credit scores are changing their calculations in a way that further lowers the scores of people with riskier borrowing. The best credit risks could see their scores increased even more.

The Wall Street Journal broke that story about the FICO credit score system, run by Fair Isaac Corp., and the concerning trend of people taking out personal loans to pay off other debt.

Marketplace’s David Brancaccio spoke with WSJ reporter AnnaMaria Andriotis about the changes. Below is an edited transcript of their conversation.

David Brancaccio: Give us a sense of what is the problem these FICO people are trying to fix.

AnnaMaria Andriotis: Credit scores have been rising in recent years. That has been a result of an improving economy, but there have also been questions about whether scores have been rising because of negative information that has fallen off of people’s credit reports. In recent years, things like tax liens, judgments, certain collection accounts had been removed. What this new version of the FICO score is doing is it is going to be judging new negative actions — things like missed payments — more harshly than previous versions.

[5thofjuly]

" Broadly speaking, people who have credit scores of 680 or above will generally see their scores rise if they continue to exhibit good debt management and payment behavior. So whatever the scores are now would likely be higher with a new score. People who have low scores, scores generally below 600, who continue to exhibit negative behavior, whether it’s newly missed payments or other black marks, what they will see is that their score will likely fall by more than what it would have fallen by with previous FICO versions. So essentially, the separation between people with high scores and low scores is likely to get bigger."







Oh, so just like the rest of society. Ugh.

[mouse]

Do FICO scores actually protect lenders, insurers, and employers by accurately predicting defaults and fraud issues? Because the way they’re used it seems like just another way to make sure the poorest can’t pull out - by getting a job, by getting an insurance rate that reflects their actual risk, by paying fees they can afford. Meanwhile people who have never struggled pay far less for many of the same things. I’d need to see some pretty high proof that this is utilitarian, not arbitrarily punitive.

[redheadbaker]

Jan 23, 2020 18:09:36 GMT -5 mouse said:

Do FICO scores actually protect lenders, insurers, and employers by accurately predicting defaults and fraud issues? Because the way they’re used it seems like just another way to make sure the poorest can’t pull out - by getting a job, by getting an insurance rate that reflects their actual risk, by paying fees they can afford. Meanwhile people who have never struggled pay far less for many of the same things. I’d need to see some pretty high proof that this is utilitarian, not arbitrarily punitive.

Regarding employers - absolutely not, and the Big 3 credit bureaus even admit so themselves, while still pushing employers to use it to determine who to hire. 

[mouse]

Jan 23, 2020 18:13:13 GMT -5 redheadbaker said:

Jan 23, 2020 18:09:36 GMT -5 mouse said:

Do FICO scores actually protect lenders, insurers, and employers by accurately predicting defaults and fraud issues? Because the way they’re used it seems like just another way to make sure the poorest can’t pull out - by getting a job, by getting an insurance rate that reflects their actual risk, by paying fees they can afford. Meanwhile people who have never struggled pay far less for many of the same things. I’d need to see some pretty high proof that this is utilitarian, not arbitrarily punitive.

Regarding employers - absolutely not, and the Big 3 credit bureaus even admit so themselves, while still pushing employers to use it to determine who to hire. 

RAGE and yet about what I’d figured.

It’s so fucked up. I remember my friend who was a struggling single mom was charged a sky-high rate on her insurance despite having no accidents and no tickets. The agent looked her in the eye and told her it was because her credit score made her a fraud risk. It was so cruel.

[seeyalater52]

Jan 23, 2020 19:46:13 GMT -5 Catlawdy said:

Jan 23, 2020 18:09:36 GMT -5 mouse said:

Do FICO scores actually protect lenders, insurers, and employers by accurately predicting defaults and fraud issues? Because the way they’re used it seems like just another way to make sure the poorest can’t pull out - by getting a job, by getting an insurance rate that reflects their actual risk, by paying fees they can afford. Meanwhile people who have never struggled pay far less for many of the same things. I’d need to see some pretty high proof that this is utilitarian, not arbitrarily punitive.

Our credit union doesn't use scores for lending purposes (at least that's what they told me years ago).  They look at your income, your credit report to see debts and obligations, and make a determination as to whether or not you should get a loan.  Seems rational.  They have a low default rate.

This seems way more rational to me. My credit score is 825 but I feel massively over leveraged in terms of debt. I’m amazed by how much credit I’m offered. Way, way more than I could ever afford to pay back.

[darthnbjenni]

Way to screw over the working class. Other than my home (which is over 35% paid off) and student loans, I have a $200 credit card that I use and pay monthly. Our cars are used and paid for. But medical debt and a divorce years ago have annihilated my credit, and we have been stuck in a 3 bedroom house with a family of 6 because of it.

[AAM2012]

Jan 23, 2020 21:31:02 GMT -5 darthnbjenni said:

Way to screw over the working class. Other than my home (which is over 35% paid off) and student loans, I have a $200 credit card that I use and pay monthly. Our cars are used and paid for. But medical debt and a divorce years ago have annihilated my credit, and we have been stuck in a 3 bedroom house with a family of 6 because of it.

Not sure what you classify as the working class..But I am sure these changes won’t impact your FICO score. While it won’t change your current housing situation.

[penelope]

We didn’t have any credit cards and our vehicles were paid off for 2+ years. We finally found a home but we were unable to get a long term mortgage because we were considered a risk. We had enough for 20% down and still have savings but we had to do a balloon loan and we were instructed to get credit cards to raise our credit.

Fast forward four years after doing everything we were told to do, it was time for a new vehicle for me. Credit score was good and we agreed to finance through the dealer because they made it sooo easy. Drove off in my new car just like that. 2 months later we went to refinance. My credit score had plummeted by over 50 points. The dealer ran 9 hard credit checks on me. Come to find out they get a kick back from certain companies just for trying. (Said our loan officer. I really have no first hand knowledge of this. 🤷‍♀️). If we had gone with a 30 year my name would have been left off the loan because the interest rate would have been too high. We went with a 15 year so it didn’t matter. Something like that did so much damage. They said they don’t affect things as long as late payments but still. If something like that will hurt even more people could get really screwed.

PSA Always go to your bank!!!

[tres3]

Jan 23, 2020 18:13:13 GMT -5 redheadbaker said:

Jan 23, 2020 18:09:36 GMT -5 mouse said:

Do FICO scores actually protect lenders, insurers, and employers by accurately predicting defaults and fraud issues? Because the way they’re used it seems like just another way to make sure the poorest can’t pull out - by getting a job, by getting an insurance rate that reflects their actual risk, by paying fees they can afford. Meanwhile people who have never struggled pay far less for many of the same things. I’d need to see some pretty high proof that this is utilitarian, not arbitrarily punitive.

Regarding employers - absolutely not, and the Big 3 credit bureaus even admit so themselves, while still pushing employers to use it to determine who to hire. 

Your TSA screener has to pass a background check that limits how much they have in collections (including medical debt--which is almost always outside of the control of the person and just a sign of how crappy our healthcare system is) because apparently collections is a good way to figure out if someones at risk for bribery.... however they could have 100K in credit card debt (like Brett Kavanagh) and it wouldn't raise a single flag.

The system hurts and keeps the poor in place. 

[tres3]

My credit score is the 800s. The only debt I have is my SLs DH is the same. We have one credit card that we use for everything and pay off monthly for points. We paid off our mortgage 3 years ago and haven't had car notes in 5+ years but may get one this year as my minivan is now 12 years old.

[shauni27]

Jan 23, 2020 20:32:22 GMT -5 seeyalater52 said:

Jan 23, 2020 19:46:13 GMT -5 Catlawdy said:

Our credit union doesn't use scores for lending purposes (at least that's what they told me years ago).  They look at your income, your credit report to see debts and obligations, and make a determination as to whether or not you should get a loan.  Seems rational.  They have a low default rate.

This seems way more rational to me. My credit score is 825 but I feel massively over leveraged in terms of debt. I’m amazed by how much credit I’m offered. Way, way more than I could ever afford to pay back.

seriously, this. Our credit has dropped a little from the high 800s to the high 700s, but even so, when we were pre-approved to buy a new house we were approved for HUNDREDS of THOUSANDS more than we could ever conceivably afford. WTF.

[AAM2012]

Jan 24, 2020 5:58:11 GMT -5 tres3 said:

My credit score is the 800s. The only debt I have is my SLs DH is the same. We have one credit card that we use for everything and pay off monthly for points. We paid off our mortgage 3 years ago and haven't had car notes in 5+ years but may get one this year as my minivan is now 12 years old.

What was the point of your post?

[juliej]

Jan 24, 2020 5:58:11 GMT -5 tres3 said:

My credit score is the 800s. The only debt I have is my SLs DH is the same. We have one credit card that we use for everything and pay off monthly for points. We paid off our mortgage 3 years ago and haven't had car notes in 5+ years but may get one this year as my minivan is now 12 years old.

Yay?

[icedcoffee]

Jan 23, 2020 20:32:22 GMT -5 seeyalater52 said:

Jan 23, 2020 19:46:13 GMT -5 Catlawdy said:

Our credit union doesn't use scores for lending purposes (at least that's what they told me years ago).  They look at your income, your credit report to see debts and obligations, and make a determination as to whether or not you should get a loan.  Seems rational.  They have a low default rate.

This seems way more rational to me. My credit score is 825 but I feel massively over leveraged in terms of debt. I’m amazed by how much credit I’m offered. Way, way more than I could ever afford to pay back.

Deciding who they extend credit to has always made no sense to me. Right after college I remember applying for an Amazon credit card so I could get $200 off my ipod (LOL). They denied me completely, despite the fact that I had a fairly high paying job, no debt, another credit card I paid in full each month, etc. A few years later I applied for a mortgage, they preapproved me for $600,000 more than the house we ended up buying cost. Had we spent up to what we were preapproved for I would without a doubt be living on the streets. Who the hell thinks they should preapprove me for such a large mortgage?!?!

[taratru]

This is exactly what has happened to me. After years of building the number back up and things dropping off, I fucked up some late payments and I'm back to a number that is almost as low as it was post-bankruptcy.

It's enraging.

[msmerymac]

shauni27, when we bought our house, I was a freelancer, so we didn't even try to get me to qualify for the mortgage. But even without my income, with my husband applying for himself, he asked them to cap him just above the asking price of the house we were putting in an offer on. We didn't even want to know what they might offer us otherwise!

[msmerymac]

Jan 24, 2020 5:58:11 GMT -5 tres3 said:

My credit score is the 800s. The only debt I have is my SLs DH is the same. We have one credit card that we use for everything and pay off monthly for points. We paid off our mortgage 3 years ago and haven't had car notes in 5+ years but may get one this year as my minivan is now 12 years old.

I'm pretty sure you'll be fine.

[mcsangel2]

I think that this is total bullshit.

[rebneen]

Awesome.

One more way this divorce will be biting me in the ass financially for years to come.

[AAM2012]

Jan 23, 2020 22:19:38 GMT -5 penelope said:

We didn’t have any credit cards and our vehicles were paid off for 2+ years. We finally found a home but we were unable to get a long term mortgage because we were considered a risk. We had enough for 20% down and still have savings but we had to do a balloon loan and we were instructed to get credit cards to raise our credit.

Fast forward four years after doing everything we were told to do, it was time for a new vehicle for me. Credit score was good and we agreed to finance through the dealer because they made it sooo easy. Drove off in my new car just like that. 2 months later we went to refinance. My credit score had plummeted by over 50 points. The dealer ran 9 hard credit checks on me. Come to find out they get a kick back from certain companies just for trying. (Said our loan officer. I really have no first hand knowledge of this. 🤷‍♀️). If we had gone with a 30 year my name would have been left off the loan because the interest rate would have been too high. We went with a 15 year so it didn’t matter. Something like that did so much damage. They said they don’t affect things as long as late payments but still. If something like that will hurt even more people could get really screwed.

PSA Always go to your bank!!!

I have my credit frozen and we recently started looking for a new car. The first dealership (BMW)we chatted with the salesman, looked at some cars on the lot and we were going to browse their entire selection online, then he asked for my DL to “create my profile”. Sales agent entered the info, went away for quite a while then came back with the manager that said we didn’t have anything close to what I was looking for....

It was very weird and abrupt ending.I didn’t figure it out until later that they tried to run my credit and they couldn’t or couldn’t get info so they didn’t want to “waste their time”.

Needless to say we went to a different dealership and I had my car in < 2 days (Toyota). The first dealership called me back at the end of the month as they had “great deals” but too little too late.

[yentl]

Jan 23, 2020 15:18:44 GMT -5 redheadbaker said:

AnnaMaria Andriotis: Credit scores have been rising in recent years. That has been a result of an improving economy, but there have also been questions about whether scores have been rising because of negative information that has fallen off of people’s credit reports. In recent years, things like tax liens, judgments, certain collection accounts had been removed. What this new version of the FICO score is doing is it is going to be judging new negative actions — things like missed payments — more harshly than previous versions.

This is strange to me. They're saying since people have been doing better and recovering since the previous recession they need to judge minor recent things more harshly?

I wish FICO scores and the way they are determined were not so opaque. It also seems like anyone loaning money should have clear charts and descriptions for scores/aprs/whatever. It's just too easy to screw people over and makes it difficult for anyone to advocate for themselves.

[mouse]

Jan 24, 2020 16:16:43 GMT -5 yentl said:

Jan 23, 2020 15:18:44 GMT -5 redheadbaker said:

AnnaMaria Andriotis: Credit scores have been rising in recent years. That has been a result of an improving economy, but there have also been questions about whether scores have been rising because of negative information that has fallen off of people’s credit reports. In recent years, things like tax liens, judgments, certain collection accounts had been removed. What this new version of the FICO score is doing is it is going to be judging new negative actions — things like missed payments — more harshly than previous versions.

This is strange to me. They're saying since people have been doing better and recovering since the previous recession they need to judge minor recent things more harshly?

I wish FICO scores and the way they are determined were not so opaque. It also seems like anyone loaning money should have clear charts and descriptions for scores/aprs/whatever. It's just too easy to screw people over and makes it difficult for anyone to advocate for themselves.

My tinfoil hat says that’s not an accident. The scores are used to charge people more than they should be charged, but we accept it because it hits the most vulnerable and we’re all focused on making sure that’s not us.

[Aquatica]

The quote that gets me is this:

"Andriotis: That’s right. So pulling back from the specific changes, looking at what’s happening here, [there are] really broader consumer lending issues sort of playing out here, and that is the fact that consumer debts in the U.S. are at record highs right now. Personal loans, originations and balances of these loans have been rising significantly in recent years, and they are among the riskier loans out there because, essentially, they are unsecured. It’s not like a lender can come after your car or a person’s home if they don’t pay the personal loan, and also because the loans are typically money that’s just deposited in a consumer’s bank account, and they can be used pretty much for almost whatever they want to use it for. [There are] really very few ways for a lender to get that money back if the person stops paying."

Isn't that on the lender for the unsecured loan or to require more if there is an issue of people not repaying? It sounds like FICO needs to MYOB instead of changing the system.

If it wasn't for an unsecured loan, H and I would have been struggling financially. But this should be left up to lenders to make the choice of who to approve and deny, not FICO changing their calculations/harsher penalties.

[tres3]

Jan 24, 2020 14:41:38 GMT -5 AAM2012 said:

Jan 23, 2020 22:19:38 GMT -5 penelope said:

We didn’t have any credit cards and our vehicles were paid off for 2+ years. We finally found a home but we were unable to get a long term mortgage because we were considered a risk. We had enough for 20% down and still have savings but we had to do a balloon loan and we were instructed to get credit cards to raise our credit.

Fast forward four years after doing everything we were told to do, it was time for a new vehicle for me. Credit score was good and we agreed to finance through the dealer because they made it sooo easy. Drove off in my new car just like that. 2 months later we went to refinance. My credit score had plummeted by over 50 points. The dealer ran 9 hard credit checks on me. Come to find out they get a kick back from certain companies just for trying. (Said our loan officer. I really have no first hand knowledge of this. 🤷‍♀️). If we had gone with a 30 year my name would have been left off the loan because the interest rate would have been too high. We went with a 15 year so it didn’t matter. Something like that did so much damage. They said they don’t affect things as long as late payments but still. If something like that will hurt even more people could get really screwed.

PSA Always go to your bank!!!

I have my credit frozen and we recently started looking for a new car. The first dealership (BMW)we chatted with the salesman, looked at some cars on the lot and we were going to browse their entire selection online, then he asked for my DL to “create my profile”. Sales agent entered the info, went away for quite a while then came back with the manager that said we didn’t have anything close to what I was looking for....

It was very weird and abrupt ending.I didn’t figure it out until later that they tried to run my credit and they couldn’t or couldn’t get info so they didn’t want to “waste their time”.

Needless to say we went to a different dealership and I had my car in < 2 days (Toyota). The first dealership called me back at the end of the month as they had “great deals” but too little too late.

wow that seems like a violation of fair credit reporting. You can't run a report without someone's permission. 

[Bernadine]

Jan 24, 2020 11:40:02 GMT -5 taratru said:

This is exactly what has happened to me. After years of building the number back up and things dropping off, I fucked up some late payments and I'm back to a number that is almost as low as it was post-bankruptcy.

It's enraging.

Yeah, before I was medicated for depression, I made some late payments. I’m honestly not even sure what my score is right now.

[AAM2012]

Jan 24, 2020 20:13:33 GMT -5 tres3 said:

Jan 24, 2020 14:41:38 GMT -5 AAM2012 said:

I have my credit frozen and we recently started looking for a new car. The first dealership (BMW)we chatted with the salesman, looked at some cars on the lot and we were going to browse their entire selection online, then he asked for my DL to “create my profile”. Sales agent entered the info, went away for quite a while then came back with the manager that said we didn’t have anything close to what I was looking for....

It was very weird and abrupt ending.I didn’t figure it out until later that they tried to run my credit and they couldn’t or couldn’t get info so they didn’t want to “waste their time”.

Needless to say we went to a different dealership and I had my car in < 2 days (Toyota). The first dealership called me back at the end of the month as they had “great deals” but too little too late.

wow that seems like a violation of fair credit reporting. You can't run a report without someone's permission. 

Can you clarify on the violation? I am really curious and irritated with this dealership...which is right down the road from us and my DH uses for general maintenance on his car..but we can go elsewhere.

My guess is that it’s a soft credit pull type system/program they use, which they still can’t truly pull if someone’s credit is frozen.

They didn’t ask for my SSN. Initially the salesman asked for my drivers license which I didn’t have at the time, and additionally wasn’t going to test drive a vehicle. Then the convo switched to “let’s see what your old car is worth...what’s the VIN?!”

Me: my 14 year old suv isn’t worth anything.

Salesman: what’s the VIN?

Me: Definitely, no clue..,..

Salesman: Do you have your insurance card? It’ll have the VIN.

Me: UHHHHH let me try to find it online.:.

It was super weird, I won’t go into details but my credit is great and we were flexible on price but didn’t disclose verbally to the dealership.

I felt very violated, confused and angry after I realized what (I think) happened.

[statgirl]

We ran into an odd issue two years ago where since our house was paid off and our CU put my husband as only an authorized user on our joint CC, he had a credit file with all good stuff but no score any longer. We figured this out when we went to try to move and applied at the CU for a mortgage (20% down, about 200K less than they had pre-approved us for when our income was 1/2 what it was, and they advertised 109% loans all the time) and got denied as a “bad risk” as he had no score anymore. We ended up having to find a CU that did manual underwriting, but then ran into trouble because the majority of bills were in his name so I was a risk (despite having a good FICO). No real point except FICO is so arbitrary for being so well-defined and I am grateful we had options. Not everyone does.