FICO Credit Scoring BASICS (updated 7/4/10)
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 scores are designed to assist 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.
If FICO scores are important to you, analyze your FICO SCORE FACTORS and 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.
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 http://www.myfico.com/ 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.
And 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) at http://www.creditlegislation.org/ and I will update with NEW examples of buggy FICO scoring formulas as time permits.
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 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 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 extrememly 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:
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.
Here is an example of bizarre scoring:
Reaffirmation = currently delinquent for scores even when paid on time?
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 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, they 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 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 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 given 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 your creditors BEFORE the statement date (instead of by the DUE date) and just paying 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.
Another example is student loan reporting.
It causing similar damages to many consumers due to the increasing balances while the student loans are in deferment. Sallie Mae and most lenders 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
collections
charge-offs
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 scores.
Predicting either is difficult.
Unless you have a scientific interest, 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.
My Experian depositions, including Dudley Hall on Experian’s worthless credit scores.
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:
They will most likely permanently LOWER your credit scores due to their extraordinary incompetence and negligence and they should all be disbarred.
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 14% mortgage because your FICO score wasn’t quite high enough for the 6% 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 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 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 reporting.
MyFICO doesn’t care that I DOCUMENTED bugs in their formula:
MILLIONS of consumers have their Equifax FICO scores destroyed due to late payments that ONLY exist 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, spent the last 9 years filing complaints, suing, publishing …
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 absolutely 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:
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.
whow. thanks
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