F**ked by FICO

[marmar]

FICO Scores Show Flaws as U.S. Banks Cut Credit Lines (Update1)
By Alexis Leondis


June 30 (Bloomberg) -- When Sharii Rey, a paralegal in Portland, Oregon, had her credit limit reduced by JPMorgan Chase & Co. earlier this month, she said it would hurt her 760 credit score. That’s not the bank’s problem, she was told. It’s FICO’s.

After Rey’s $42,500 credit line was cut to $12,000, her debt relative to available funds almost quadrupled. This so- called utilization rate is a large component of the FICO formula and a higher ratio can lower a score. Rey, 62, is concerned a new FICO score will squash her ability to borrow.

Congressman Luis Gutierrez, an Illinois Democrat, says the FICO formula, the most widely used by U.S. lenders, has flaws as banks decrease loans to consumers, regardless of individual risk profiles. At least 30 million Americans had their credit limits reduced arbitrarily during the second half of 2008, FICO estimates. In the first quarter, New York-based JPMorgan and Citigroup Inc. and Bank of America Corp. in Charlotte, North Carolina, slashed $320 billion from credit lines, according to a report by former Oppenheimer & Co. analyst Meredith Whitney.

“Reductions to a consumer’s line of credit based upon the lending institutions’ overall appetite for risk has little or no bearing on a consumer’s own risk of default,” said Gutierrez, chairman of the House Subcommittee on Financial Institutions and Consumer Credit.

An individual’s FICO score is based on factors that aren’t directly related to JPMorgan’s decision to lower a credit limit, said Paul Hartwick, a spokesman for the biggest U.S. bank by market value. ..............(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601213&sid=aDdhtcEykjR8

[lefthandedlefty]

1. Maybe they did her a favor

I wish day after day that I had never gotten in debt in the first place.Look at a 30 year home loan figure the amount of the first 10 years payments that will amount to almost what you paid for it the next 20 years are for intrest.Look at credit Cards if you carry a balance it is almost impossible to pay them off.

[MajorChode]

3. Some favor

Your credit score has a lot more to do with just your ability to get credit cards. It affects everything from the insurance rates you pay, to the amount of deposit you have to put down for utilities, to your ability to get a job.

It stands to reason that banks are arbitrarily lowering people's credit so they can advertise low rates and then fuck more people with higher ones when they say their credit sucks. That also gives them ammo when people start taking a look at their predatory lending practices.

"We raised your rates because your credit score went down."

Right.

[tavalon]

2. Fuck FICO

Stop giving them power. We're all losing points on our precious scores and it's time to just walk away from that silliness.

[Trekologer]

4. Its time for them to stop that garbabe

FICO and any other credit scoring methods should be disclosed. If you're going to use the score against you, you should know how it was calculated and what you need to do to improve it.

[KamaAina]

5. Ironically, the 'FI' stands for "Fair Isaac"

the name of the company that created the FICO monster.

They should change it to "Unfair Isaac". :eyes:

[Norrin Radd]

6. Get rid of it altogether.

[question everything]

7. What do credit institutions want?

They are in the business to lend money. So if they refuse loans to most people they might as well close their doors and let someone else run a better business.

For a start, work in the community. Know who your customers are and keep the loans in the bank, instead of "bundling" them to Wall Street.

And the reality is that, once we replaced our manufacturing based economy with a service one - we are all in this together. Our economy depends on purchasing and on credit. Why, news that more of us are saving was a bad news on Wall Street the other day.

Papa Bush was right the first place, when he talked about Voodoo economics.

[Turbineguy]

8. They want to avoid decisions.

They want a system with a formula to tell them what to do. That way they can spend their energies trying to figure out what to buy with their bonuses instead of dealing with the rabble.

[kcass1954]

10. They don't know who they're lending to anymore, just making decisions based solely on the score.

I was a mortgage underwriter at a small community S&L in the early 90s. No FICO scores - I learned how to actually read a credit report. I talked to all of my borrowers on the phone, and met a good number of them in person. If someone had a few minor credit dings, we looked at the total application package, searching for "compensating factors" to try to keep a deal together.

We were in the mortgage business to lend money, and we did. We made money on every deal we closed, and managed to do so without screwing the customers.

[EvolveOrConvolve]

9. What people fail to realize is how much money lenders make off the FICO

If they can artificially reduce your FICO score, they know that you are still a good credit risk. But, they then have a "legitimate" reason for increasing interest rates. Like magic, the risk is unchanged and the reward is greater.

[question everything]

11. Sigh. It would be nice if we could just tell these lenders to go to hell

and to take our business elsewhere. Supposedly this is what capitalism, free market, etc. is all about. Competition where the consumer wins.

[sarcasmo]

12. Do not forget, her Insurance will also go up. Shari Rey will have a hard time getting a job because

of her credit score.