FICO Credit Scoring BASICS (updated 12/6/12)

MANY different credit scores are sold to creditors and collectors to increase profitability.

A low credit score gives banks a LEGAL reason to increase your interest rate, lower your credit limit or close your account.  Collection credit scores are designed to assist collectors with determining which debtors to pursue.

Most creditors use FICO scores:

  • FICO scores are required for almost all mortgages.
  • A HIGH FICO score may result in a LOWER score used by credit card issuers or auto lenders or insurers.

Many creditors use “enhanced” credit scores, taking information from your application into consideration.

MANY credit scores are ONLY sold to consumers in a very successful attempt to mislead them.

Often referred to as “FAKO scores”, they are sold by the credit bureaus and all these worthless credit monitoring services.  They often vary by OVER 100 points from the scores the LENDERS use.

4/8/11: Lawsuit: Credit score sites mislead consumers

… Confused about your credit score and where to get it?  That’s intentional, according to a new lawsuit filed in a California federal court.

Many consumers who think they are buying a peek at their credit scores are being defrauded, according to a lawsuit against credit bureau giant Experian. The case, which seeks class action status, claims that Experian is intentionally confusing customers, engaging in false advertising and not giving consumers what they pay for when they sign up for services at the firm’s popular and Web sites.

“It’s a classic consumer fraud case,” said David Woodward, one of the lawyers who filed the case. “The law is designed to prohibit exactly this kind of egregious advertising practice. … The defendant is profiting from deception.”

Experian, through its ConsumerInfo brand, aggressively markets access to credit scores as a benefit of subscribing to its credit monitoring service.  Knowing your credit score, ads suggest, is essential before borrowing money and could save consumers thousands of dollars. …

My 2006 Experian depositions, including Dudley Hall on Experian’s worthless credit scores.

If you are attempting to improve your credit rating by following the advice provided with these fraudulent scores you may LOWER your FICO scores.

If FICO scores are important to you, analyze your FICO SCORE FACTORS and your myFICO reports!

It’s hard work, but if you need a mortgage, well worth the effort.

A great way to seriously and permanently LOWER your FICO scores:

  • Follow the advice provided by the credit bureaus for THEIR scores (TrueCredit, Experian Plus, Vantage Score, etc.).
  • Follow Suze Orman’s advice at myFICO and use the FICO score simulator.

The credit bureaus and Fair Isaac work for creditors and collectors and the lower your scores, the better it is for them as your credit information is more PROFITABLE if your scores are low.

So if you’re serious about your credit rating, purchase the myFICO reports (only Trans Union and Equifax are currently available) with the FICO scores and score factors at and take the time to analyze the reporting and score factors.

IMPORTANT: The myFICO reports are INCOMPLETE and are NOT complete consumer disclosures.

  • MyFICO reports do NOT provide MOST credit inquiries.
  • MyFICO reports do NOT provide much of the data in the credit bureaus’ databases.
  • MyFICO Equifax reports do NOT provide the NAMES of collectors.
  • MyFICO Equifax reports do NOT provide contact information for any creditors, falsely stating that Equifax does not provide this information.

Despite these serious shortfalls, you have to analyze the myFICO reports if you want to improve your FICO scores because they are the only reports with the score factors and the omitted information is not utilized for score calculations, making it easier to determine which data impacts on your FICO scores.

To complicate matters, the myFICO credit scoring formulas are BUGGY.

I documented some of the myFICO deliberate actions to artificially lower FICO scores, forcing GOOD credit risk consumers into subprime mortgages and foreclosure.

While you may also be able to purchase credit reports with FICO scores at the credit bureaus’ (CRAs) sites, each CRA uses a different format, making it much harder to compare the reporting of the individual accounts by the 3 CRAs.

If your credit is VERY important, compare the CRA direct reports with the myFICO reports.  I generally recommend NOT disputing data that is incorrectly reported by the CRAs, but NOT utilized in the FICO scores (not reported on the myFICO reports).

Many valuable accounts are permanently deleted due to disputes of irrelevant data. Even the deletion of charge-offs can lower the FICO scores:

AFTER deletion of chargeoff: score went DOWN 18 points!

That is why it is so important to review the ENTIRE reports and to determine whether deletion of a negative account could actually LOWER your FICO scores because it is the OLDEST account and deletion reduces your ACCOUNT HISTORY — one of the most important components of FICO scores.

ALL tri-merged credit reports are INCOMPLETE.

These are the reports usually provided with credit monitoring services and to protect against ID theft (for most consumers a giant waste of money) and they are often marketed as “3-in-1” reports.

Use tri-merged reports ONLY to monitor for deletions, balances, reporting of new accounts, hard inquiries, etc.

  • SOFT inquiries (account review, promotional, insurance and some collection inquiries) are NEVER included on tri-merged reports.

Tri-merged reports can NOT be used to improve FICO scores.

  • The TrueCredit (Trans Union) credit reports are also incomplete and I even filed a lawsuit against Trans Union and TrueCredit because it is almost impossible to obtain ANY Trans Union credit report with all data unless you DISPUTE with Trans Union or obtain the free annual report. However, judge Wake felt that it is fine for Trans Union to sell incomplete credit reports without disclosing this fact and not to offer the complete reports for purchase.
  • The Experian online credit reports provided with its credit monitoring service are also missing MOST reported data. You need to pretend to want to DISPUTE online to receive the complete Experian credit report.

It is extremely profitable for the credit bureaus to NOT disclose all data because you can’t dispute what you don’t know and this often incorrect data can seriously lower your FICO scores.

There are several VERSIONS of the FICO credit scoring software and scores vary for the same report — depending on the software VERSION utilized to calculate the scores.

You may get a 685 FICO and your mortgage lender may get a 663. Creditors have to PAY for software upgrades and many simply see no reason to do so.

FICO credit scores are calculated by FRAUDWARE and often make no sense at all.

See the 1997 reports and scores at my OLD BayHouse website:

FICO Credit Scoring IS Fraud!

While the FICO scores on mortgage credit reports are often close to the FICO scores you can order yourself, the Fair Isaac scores for credit cards and auto loans can be quite different.

An example of bizarre scoring is that reaffirmation of an account paid after bankruptcy can seriously lower your FICO scores because it is rated as DELINQUENT as of the last time it was reported, usually this or last month.  I discovered this FICO bug because I took the time to review the score factors and the individual accounts.

You must review the score factors AND the explanations if you want to gain an understanding of your FICO credit scores, but whether your scores are 620 one day and 625 the next day is irrelevant.

NEW FICO 2008 scoring formula

You might have seen articles about the NEW FICO scores.  In fact, Fair Isaac frequently changes the formulas. Credit counseling notations used to be derogatory and they changed that.

Authorized user (AU) accounts were ABUSED by many scummy outfits who sold AU accounts until myFICO announced that it no longer rates AU accounts.

However, as usual, myFICO lied.

While SOME aspects of AU accounts are no longer rated for Trans Union FICO scores, I documented that the AU accounts ARE still rated for account history.

As always, you improve your scores by reviewing YOUR score factors and the detailed explanations.

Credit Inquiries

“Hard” inquiries (reported to creditors and myFICO) can substantially lower your scores, especially if your scores are LOW already — up to 35 points per inquiry and up to 115 points total for all inquiries according to postings.

Numerous times I’ve seen clients with 700+ scores get several new inquiries and they had absolutely NO effect.

The lower your scores, the greater the impact of hard inquiries.

Not ALL hard inquiries are counted by Fair Isaac.

You may have heard that auto and mortgage shopping will not lower your scores, but that’s often NOT true.

See Fair Isaac Credit Scoring: Inquiry counts – collections and charge-offs

Deletion of collections, charge-offs, judgments

People often get frustrated when they get deletions, but their scores don’t change or go down instead of up.

1) Scoring formulas rate the most recent date in any category of derogatory accounts.

If you have a 2008 collection and a 2003 collection and the 2003 collection is deleted, your score probably won’t change at all. You still have that most recent 2008 collection.

2) The scoring software uses about 10 different models (formulas) to calculate the scores.

Your report is analyzed by the software to determine which model to use for your report. If you were in the model for frequent late payments and you get some lates deleted, your score may go down because you’re now scored by a different model.

You’d think that the deletion of a foreclosure would ALWAYS increase your scores, but, that’s just NOT so.

Account History and Balance/Limit Ratio

The available credit on your revolving accounts is most important. The closer your accounts are to being maxed out, the higher your balance/limit ratio and the lower your FICO scores.

However, it makes little difference whether use 50% or 90% of you available credit.   50% is considered EXTREMELY negative by myFICO.

The FICO scores rate the combined ratio of all revolving accounts as well as individual accounts.

If you have a combined credit limit of $1,000 for all your revolving accounts, $500 reported as the total balance likely causes your FICO scores to be 30 to 50 points LOWER than if the reported balance was only $50.

You can easily MANIPULATE the reported balances by paying BEFORE the statement date (in addition to your minimum payment by the due date)  and paying your credit cards just a couple weeks EARLY can significantly increase your credit scores.

Capital One has destroyed many MILLIONS of lives because it refused to report the credit limits for about 50 million credit card accounts for many years and therefore artificially lowered credit scores to prevent its customers from getting credit cards from competitors with better terms.

I sued Capital One in 2003 for refusing to report the credit limits.  Capital One claimed to have spent over $100,000 in legal fees to defend against me – a consumer with NO legal skills and no cash to pay attorneys.  Capital One even offered me $3,000 in an offer of judgment, but I declined because the litigation brought attention to Capital One’s vile reporting practices.

While Phoenix federal judge Wake wrote that I suffered damages, he didn’t think that credit limits needed to be reported.  However, Capital One finally agreed to report the credit limits in 2008 after several class actions were filed against Capital One and the CRAs.

Capital One’s refusal to report the credit limits is just ONE example of SYSTEMIC incomplete and incorrect credit reporting.

Currently, Capital One reports SETTLED accounts with a balance.

For example, a client settled a $1,000 account for $500.  They changed the balance to $500 after the settlement until we disputed with the credit bureaus.  Of course they can not legally report a balance for a settled account, but until class actions are files, they’ll probably continue to do so.  And obviously this past due balance seriously lowers FICO scores.

Another example is student loan reporting.

Sallie Mae and most lenders including the Department of Education REFUSE to add the deferred interest to the REPORTED original loan balance.  The credit bureaus REFUSE to correct.

FICO scores interpret the higher CURRENT balance than the original amount of the student loan as a NEGATIVE because you are generally NOT supposed to owe more than you originally borrowed.

Of course NOBODY discloses to students that the deferred student loans will damage their credit rating.

Many factors are much more important than derogatory accounts.

A client’s mortgage credit report contained:

4 unpaid judgments
late payments

All derogatory accounts were several years old and a couple of open credit cards were reported.

All three FICO scores were 660+

That’s because he had a long ACCOUNT HISTORY and the derogatory data was OLD and CORRECTLY reported.

FICO scores are unpredictable.

It’s perfectly ok to monitor the progress of disputes and how they affect your FICO scores, but you have to understand that credit scores are a lot like outside temperatures. In summer (good credit) the number is high, in winter (bad credit) the number is low. We see abnormally low temperatures in summer, hot spells in winter, and that’s just how it is.

Many factors go into the weather, many factors go into credit scores.

Predicting either is difficult.

Unless you have a scientific interes, you shouldn’t waste your time on trying to figure out why the daytime high is 3 degrees higher than yesterday or why your score went up 3 points — it’s irrelevant. 10+ point changes may warrant a closer look.

If you are serious about your credit and especially if you currently have a subprime mortgage, take the time to learn how to increase scores and what NOT to do:

Do NOT sign up with credit repair outfits like Lexington Law, Ovation Law, Credit Attorney, Allen Michael (Stephen Snyder), etc.

They will most likely permanently LOWER your credit scores due to their extraordinary incompetence and negligence and they should all be disbarred and shut down.

Additionally, many mortgage lenders are now requiring that DISPUTE NOTATIONS be removed from all credit reports prior to mortgage approval. 

Often creditors will delete entire accounts instead of removing the dispute notation if the accounts are paid or settled and the deletion can lower the FICO scores.  While dispute notations for collections (reported as such) are ignored for FICO scores, derogatory data for tradelines (original creditors) is not rated while the accounts are reported as disputed.  You need to consider carefully what and how to dispute and credit repair companies dispute everything without any regard for the damages to your credit rating.

The credit reporting system is corrupt, but it works well for the people who BENEFIT.

Many people including myself enjoyed the 0% interest balance transfers and approvals in 10 seconds. It’s wonderful.

It’s not so great when you make a payment 1 day late and the rate goes from 0% to 20%. It truly sucks when you end up with a 10% mortgage because your FICO score wasn’t quite high enough for the 5% fixed rate because Cap One didn’t report the the credit limits or an old charge-off was incorrectly reported with recent late payments, etc. etc. etc.

The people who COULD change this corrupt system because they have the time and money have no desire to do so as they are the ones who benefit.

The people who are already losing their homes or are struggling to pay their credit cards with 30% interest rates and are working 2 jobs do NOT have the resources to try to change credit scoring and reporting.

Generally, I have found that most people are just really ignorant and/or lazy, they would rather watch TV and try to forget reality. That’s understandable, but I still wonder why I’m the only person on the planet to care enough to have seriously tried to CHANGE credit scoring and reporting.

I’ve given up on changes.

While getting Capital One to report the credit limits was a huge personal victory, we have since had many court rulings in favor of the credit bureaus and they are essentially not liable for any damages in most cases of incorrect credit reporting.

MyFICO doesn’t care that I DOCUMENTED bugs in their formula:

2/26/07: Open Letter to Fair Isaac Regarding its Addition of FICTITIOUS Derogatory Data to Credit Reports and Sale of Defective myFICO Reports

MILLIONS of consumers had their Equifax FICO scores destroyed due to late payments that ONLY existed due to a bug in the FICO scoring formula.

The corrupt judges in most courts certainly don’t care — just like judge Neil V. Wake in AZ federal court didn’t think that Capital One needed to report the credit limits.

Most legislators are corrupt and/or ignorant.

I did all I could do, publishing, litigating and filing complaints with regulators since 1994.

I planned on writing a book about my experiences in winter 2008 — not about credit repair, but about the corruption of the American corporations, media, legislators, lawyers, courts, judges, FAKE consumer organizations and the American people.

However, I had NO time.

And I finally realized that the banks CREATE the money they lend to us out of thin air and we actually owe NOTHING until WE can create the money we borrowed plus the interest out of thin air — just like the banks.

I always knew that corruption was rampant in America, but this was really hard for me to grasp.

WHY are we all slaves to the bankers?

If you don’t know what I’m talking about, you MUST watch the free 3.5 hr documentary The Money Masters

After the housing collapse many lenders realized that FICO scores are NOT predictive of defaults.

Everybody in the business knows that FICO scores are often artificially high or low and are easily manipulated.

Anyone with the cash or credit for multiple reports and my services, to settle accounts and for lawyers to SUE creditors, collectors and credit bureaus can have great FICO scores.

Since it is pointless to work on changes to the credit system, I decided to spend a lot more time on permaculture, growing food and encouraging others to grow HEALTHY organic and NOT genetically modified food:

High Desert Permaculture

Even with perfect credit we won’t get very old eating the foods at the supermarkets.

I realize that many people still NEED credit and I will continue to assist my clients and to document the many systemic problems with credit scoring and reporting. However, I hope to inspire many to take a step back and to realize the extent of the corruption and to consider the BIG picture.

Money is important and so is credit, but there’s a LOT more to life.

4 Responses to “FICO Credit Scoring BASICS (updated 12/6/12)”

  1. whow. thanks

  2. […] MUST READ:  FICO Scoring Basics […]

  3. Excellent article. Everything in America as far as banking is corrupt beyond imagination. This FICO mystery scoring is evil set out on a platter right in front of our faces. How can finacial lives be run around the whims of a mystery system???? No one knows anything concrete. You try and you try and you end up frustrated wasting your time playing a game that the credit card industry created, so obviously they know how to win. I’ve spent $14 on one site, $14 on another site and about over a month of time trying to dispute and figure out why both sites have different scores and information only to figure when I thought things where cleaned up to have my lender pull my credit so as to avoid having too many hard inquiries, apparently all my time was wasted and the lender scores did not reflect anything and was completely different. I decided I don’t want the American Dream years ago when I realized that dream came with strings galore and financial freedom is the real dream, even if it means everything you own is modest, so long as you can avoid the evil financial system our country loves to suck us into. Anyway, that you for all your hard work on exposing some of these players.

  4. Great blog!

    Your not alone and I share your sentiment, frustration and disgust!!

    I have been blessed to never let my FICO score hinder my financial life. That said, I learned early on how corrupt the practices of the FICO scoring system were and did my due diligence to monitor my own effectively. Make no mistake personal accountablility is critical. However, for those who play by the rules, pay the bills on time, do not over extend themselves and live responsibly, to be judged by a completely biased, under regulated and highly speculative third party is rediculous.

    Given it’s original intent to alleviate discriminatory practices in lending, the FICO scoring system has methodicaly mutated in to nothing more then a third party revenue stream for lenders and the Federal Govt! It is truly laughable that all services such as MyFICO, etc., sell their services under the guise that you somehow control your own score… ridiculous as evidenced in original post!! In the interest of full disclosure I have been, like many, lured in to peeking at my score and even having them monitor them for ID theft.

    All in all, this is a broken system that has been in need of serious regulation and oversight for many years!! I am disgusted to think at the number of lives, bankruptcies, and billions of dollars collected in higher interest rates by lenders praying on uninformed, ignorant or plain lazy buyers. Make no mistake, I believe in free enterprise/market system and can understand the business model but am at odds with it’s current and perverse mutation.

    Keep the great posts!


Leave a Reply