Author Topic: New FICO scoring model will incorporate debt levels  (Read 1449 times)

K Frame

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New FICO scoring model will incorporate debt levels
« on: January 23, 2020, 10:21:45 AM »
This was, I believe, talked about here a couple of years ago, and will now be written into the FICO scoring process.

https://www.cnbc.com/2020/01/23/fico-10-credit-score-changes.html

I know, I know, using anything but cash to make any purchase at all is evil, any debt is evil, FICO scores are just social engineering by "da man!" and are evil, banks are evil, blah blah blah blah blah blah blah...  :rofl:
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MechAg94

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Re: New FICO scoring model will incorporate debt levels
« Reply #1 on: January 23, 2020, 11:06:35 AM »
They don't already account for debt level?   :O

People who pay off their loans and don't file bankruptcy should see higher credit ratings.  The tone of the article makes it sound like they are oppressing people who default on loans.
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MikeB

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Re: New FICO scoring model will incorporate debt levels
« Reply #2 on: January 23, 2020, 11:37:49 AM »
There are already more than 8 or 9 models for FICO. Most lenders still use older models anyway.

Also as I found out a few years ago in general paying a loan off early actually hurts your credit score. I was looking to buy a Tractor a number of years ago and paid off my car loan early figuring it would help the credit rating a bit. It actually dropped about 20 points because I no longer had the mix of loans they like to see and I had to wait a few months for it to come back up. You have a higher score when you have a good mix of Auto/Home/Credit Card/etc.


K Frame

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Re: New FICO scoring model will incorporate debt levels
« Reply #3 on: January 23, 2020, 12:04:21 PM »
"There are already more than 8 or 9 models for FICO. Most lenders still use older models anyway."

This is FICO 10.
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zxcvbob

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Re: New FICO scoring model will incorporate debt levels
« Reply #4 on: January 23, 2020, 03:07:58 PM »
They don't already account for debt level?   :O

People who pay off their loans and don't file bankruptcy should see higher credit ratings.  The tone of the article makes it sound like they are oppressing people who default on loans.

No, people who pay down their loans but never actually pay them off will see higher ratings.  If you pay off an installment loan, your score goes down because there's "no recent credit history"  :mad:
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Jamisjockey

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Re: New FICO scoring model will incorporate debt levels
« Reply #5 on: January 23, 2020, 03:32:19 PM »
Credit scores are skewed.  The concept isn't "how good of a risk are you", the concept is "how good of an investment are you"
Showing responsible money management while carrying debt seems to be the best balance to have a high score.
Make no mistake, this is about the lending agencies making the most money off of you in the long run.
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cordex

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Re: New FICO scoring model will incorporate debt levels
« Reply #6 on: January 23, 2020, 04:28:09 PM »
Credit scores are skewed.  The concept isn't "how good of a risk are you", the concept is "how good of an investment are you"
There's an element of that I'm sure, but suddenly needing debt may be an indicator of some negative life event trigger.

I would also wager that statistically people who do not carry debt for a long period of time and whose lifestyle is adapted to not servicing debt are probably marginally worse at managing new debt than people who manage it responsibly on an ongoing basis and whose lifestyle is adapted to budgeting for it.

MechAg94

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Re: New FICO scoring model will incorporate debt levels
« Reply #7 on: January 23, 2020, 07:01:42 PM »
I imagine people that are accustomed to not carrying any debt are also more likely to pay off loans early thus reducing the amount of interest they pay. 
“It is much more important to kill bad bills than to pass good ones.”  ― Calvin Coolidge

Ben

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Re: New FICO scoring model will incorporate debt levels
« Reply #8 on: January 23, 2020, 08:21:54 PM »
There's an element of that I'm sure, but suddenly needing debt may be an indicator of some negative life event trigger.

I could see that. I've been debt free for many years now, so I could see me suddenly asking for a $200K loan setting off some alarms to check that I can pay my debts.

Shortly after I quit working, my FICO dropped from the mid-800s to around 790 with me making zero financial life changes, and stayed there till last May. The only thing I did then was get a Costco credit card. Suddenly a couple of months later I was at 820 and still am.

As I've said before here, I don't give much of a flip about my FICO score. The only stuff I ever bought on credit was real estate, and I don't plan on buying anything on credit ever again. The only reason I even got that Costco card was because Cabela's switched from Visa to Mastercard, and Costco only take Visa. Otherwise anything above 750 will get me a good rate if I were to need it for some emergency.
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MillCreek

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Re: New FICO scoring model will incorporate debt levels
« Reply #9 on: January 23, 2020, 09:02:00 PM »
We are in the same position as Ben: I guess it is possible we may get a car loan when the cars need to be replaced, but for now, we have no debt.
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Hawkmoon

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Re: New FICO scoring model will incorporate debt levels
« Reply #10 on: January 23, 2020, 10:15:50 PM »
Credit scores are skewed.  The concept isn't "how good of a risk are you", the concept is "how good of an investment are you"
Showing responsible money management while carrying debt seems to be the best balance to have a high score.
Make no mistake, this is about the lending agencies making the most money off of you in the long run.

Back in the late 1960s when my brother graduated from college he went into the Firestone Tire and Rubber Company's management training program. His first assignment was as the credit manager at a Firestone store not far from where we lived. I came from a family of depression-era parents. My parents paid cash for everything -- if they didn't have the cash, they didn't buy it.

My brother often lamented that, under Firestone's rules, he would not have been able to open a credit account for my parents because they had no credit history. But people who were in hock up to their eyeballs, who would be pushed over the edge if they bought a Snickers bar on credit - no problem. I guess nothing has changed in 50 years.
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dogmush

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Re: New FICO scoring model will incorporate debt levels
« Reply #11 on: January 24, 2020, 05:29:49 AM »
Credit scores are skewed.  The concept isn't "how good of a risk are you", the concept is "how good of an investment are you"
Showing responsible money management while carrying debt seems to be the best balance to have a high score.
Make no mistake, this is about the lending agencies making the most money off of you in the long run.

I thought this was well understood?  Your score is a reflection of how good you are at making money for the lending institution, taking into account paying the full interest, regular payments, not defaulting, and continuingly carrying revolving debt (among other things).  The more money you are likely to make them, the more they want to let you make them that money.  If you have a habit of taking money and then paying it off early so that they don't get the return on investment they expected, why would they want to give you more?

For example: my wife and I buy EVERYTHING (e.g. I bought my used 335i on my Visa) on a credit card. I only pay cash to my petsitter (because she doesn't have paypal or cashapp).  Every other thing we buy is on plastic.  So while we pay that off completely every month and they don't get interest from me, they sure get that 3.5% fee on every dollar we spend.  As a result, the regularly offer to let me spend more money, because they suspect that I'd use that card to get them 3.5% of more stuff.  So our credit score is quite a bit higher then several years ago when we paid cash or debit card for most stuff.

K Frame

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Re: New FICO scoring model will incorporate debt levels
« Reply #12 on: January 24, 2020, 07:32:53 AM »
"Credit scores are skewed.  The concept isn't "how good of a risk are you", the concept is "how good of an investment are you"

So, you're saying that financial institutions should be the equivalent of the Democratic candidates for president?

"HERE! HAVE A BUNCH OF FREE *expletive deleted*it THAT YOU'LL NEVER HAVE TO PAY FOR!"

The concept is actually BOTH how good of a risk you are and how good of an investment you are.

Someone who has a long-term credit history with no bankruptcies, defaults, late payments, hasn't tried to live beyond his means by leveraging lots of credit card debt, etc., has proven himself to be a capable money manager. With the rise of risk-based lending, those are the people who get the lowest term rates on unsecured debt loans.

We've all seen what happens when financial institutions either begin to ignore risk potentials as a business model or via government fiat -- you get the mortgage lending fiasco 2007-2009.

Are these paradigms infallible? Of course not. Life can happen. Someone can lose a job, get sick, or just decide screw it, I now believe Bernie Sanders is right that these companies are evil and I shouldn't have to pay them back so I'm not going to.

But they're accurate a lot more than not.
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Ben

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Re: New FICO scoring model will incorporate debt levels
« Reply #13 on: January 24, 2020, 08:54:41 AM »


For example: my wife and I buy EVERYTHING (e.g. I bought my used 335i on my Visa) on a credit card.

I should clarify my post in that while I don't buy "on credit",  I use credit cards for most purchases because of the points, but pay them off every month. It's not a lot of "free money" but it's like the difference between keeping your dough in a non-interest bank account and one that pays 1%. 1% is 1% more than 0%. To me, it's part of good money management.

I'm still 100% against a cashless society though. If I want to pay cash for something, I want to be able to do so. Especially something like say a gun, where it's absolutely nobody's business. Even if I lose credit card points, maybe the "freedom option" is more important to me in some instances.
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K Frame

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Re: New FICO scoring model will incorporate debt levels
« Reply #14 on: January 24, 2020, 09:05:50 AM »
I carry a credit card balance when I need to. When I was dealing with my Mom's house/estate it was necessary because keeping that place going was really chewing on my free cash and reserves. By the time everything settled it had ramped up to between $3000 and $5000.

I've since gotten it chewed back down to under $500 and I'm at the point where I can start paying it off every month again.

It's also a rewards card, and I'm to the point where I'll be able to use the rewards to buy the new TV and sound system that I have my eye on.
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AJ Dual

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Re: New FICO scoring model will incorporate debt levels
« Reply #15 on: January 24, 2020, 01:26:00 PM »
For me, the elephant in the room is all the secondary uses for credit score.

Rental applications.

Car insurance.

Employment.

I'm Libertarian/AnCap enough that I'm not saying anything close to: "Somebody should do something about that", or "There ought to be a law!" etc.  I think it's fine as compared of all the ways we're controlled by government. And most commercialized private sector soft-power systems are a lot less onerous than public sector statist hard-power ones. Still doesn't mean I don't think it's kind of creepy though.

I feel the most for landlords. Especially when they operate in states or cities where the eviction process takes months, even a year. 

Is there really a correlation between bad drivers and bad credit scores? 

It seems like it started with Secret and Top Secret .gov clearances, a bad credit score was putting you at risk for bribery to spy.

I guess I'd hope that there's ways they can filter out people who have a credit score in the toilet because of overwhelming medical debt, vs. the ones who just run up credit cards then default.
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K Frame

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Re: New FICO scoring model will incorporate debt levels
« Reply #16 on: January 24, 2020, 01:57:39 PM »
"Is there really a correlation between bad drivers and bad credit scores?"

From what I've read, yes.

And no.

And maybe.

And it's voodoo.

And so forth and so on.
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cordex

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Re: New FICO scoring model will incorporate debt levels
« Reply #17 on: January 24, 2020, 02:11:09 PM »
Is there really a correlation between bad drivers and bad credit scores? 
If there is not a valid correlation between credit scores and driver risk then it would seem that a competing insurance company could clean up by offering lower rates to that group.

K Frame

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Re: New FICO scoring model will incorporate debt levels
« Reply #18 on: January 24, 2020, 02:17:13 PM »
In MY personal experience, which is statistically completely invalid, based on people I know...

My ex wife -- poor credit history, poor debt load, mediocre to poor driving history.

My brother -- EXCEPTIONALLY poor credit history, exemplary driving record. He was an OTR trucker for many years.

Me -- exceptionally good credit history, really good driving record (no at fault accidents, and it's been over 20 years since I had a moving violation).

A friend -- Great credit history, bad bad bad driving record. She just can't keep her foot off the gas pedal and seems to have a police substation in the truck of her car.
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grampster

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Re: New FICO scoring model will incorporate debt levels
« Reply #19 on: January 26, 2020, 09:03:41 PM »
Banks, lending institutions and insurance companies should just go fico themselves. :P
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K Frame

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Re: New FICO scoring model will incorporate debt levels
« Reply #20 on: January 27, 2020, 07:58:23 AM »
Banks, lending institutions and insurance companies should just go fico themselves. :P

OK, Mr. Grampster, you seem to have a very good history, so we're going to run you through our risk-based lend FICO scoring apparatus...

We're pleased to off you our highly qualified borrower rate of 49.5%!
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grampster

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Re: New FICO scoring model will incorporate debt levels
« Reply #21 on: January 27, 2020, 09:24:35 PM »
Oooooohh, your score is so much higher than the other guy.  I'll borrow from you anytime.
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K Frame

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Re: New FICO scoring model will incorporate debt levels
« Reply #22 on: January 28, 2020, 01:16:31 PM »
Well, not to brag, but right now my credit score is sitting somewhere in the mid 820s...

OK, yeah, I'm bragging...  :-*
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