FICO Must Go
As of July 12, 2010, 25% of Americans have credit scores too low for a loan, a credit card or a mortgage and 43.3 million Americans can not get a car on credit. This is further complicated because a disproportionate amount of credit worthy small business owners due to the tax code system and accounting practices can not get loans as well.
This is all occurring in a climate where interest rates are at an all time low. The Federal government has made the largest cash infusion into Financial Institutions in History for the purpose of freeing up money for lending but the housing market, the auto industry, the retail industry and consumer spending have been devastated.
The slumping economy was mirrored by the DOW spinning downward and out of control but even after Wall Street's recovered the general economy on Main Street continues to feel the crunch. It seems no one knows the singular or the root cause of our woes. I suggest among all the places where we should be looking not to ignore FICO, The Fair Isaac Company. Who are these guys, who is monitoring them and how did they get so much power?
Here is a list of how powerful FICO currently is and where they are potentially looking to advance their influence:
- · You can not get a credit card unless FICO is consulted.
- You can not get a home mortgage unless FICO is consulted.
- · You may be able to get home or auto insurance unless FICO is consulted.
- · You can not get a car loan unless FICO is consulted.
- · You may not be able to rent an apartment unless FICO is consulted.
- · You may not be able to get a job unless FICO is consulted.
- · You may not be able to get a professional license unless FICO is consulted.
This is the tip of the iceberg. Here is how FICO works and can be manipulated with or without your knowledge and how you can be adversely affected no fault of your own.
Your credit score is based on certain debt to income or debt to credit available ratios. For example, you have a credit card with a credit limit of $5,000.00 dollars. If you borrow $1,000.00 dollars and pay $50.00 per month, FICO would report this history as favorable. In today’s market the the banks via their credit card companies in an effort to free up more capitol, above what the Feds have given them, have been covertly changing their practices. Rather than increasing credit lines for card holders they have started a practice of decreasing credit.
Now take the same card holder as in the above example who has borrowed $1,000.00 and pays $50.00 per months. If the credit card company reduces the line of available funds to $3,000.00, now FICO is going to report the same payment practice as less favorable.
Another example, home interest rates are at an all time low. This was done to stimulate the housing market. However the purpose and the effect have been negated. The financial institutes in conjunction with FICO have changed the rules. A credit score once in the high 500(s) and low 600(s) are no longer favorable; now 740 appears to be the new cutoff qualifier for the teaser rates.
Another example of FICO madness, if you are a young person coming out of college do not believe in using credit cards and would prefer to pay in cash, you have very little debt history and FICO reports this as unfavorable. Consultants in this industry will advise their clients to take out credit cards and use them to make purchases. They explain this will help improve their credit score. Not to mention it potentially starts the user on a slippery slope down the path into a practice of borrowing they did not want.
The list above affects us all. Not to mention all the errors FICO makes to your record because the many institutions we deal with are mandated to report our most private matters. Then those errors become insanely hard to correct. Bottom line FICO is bad for the middleclass. It has been a tool to help control the middleclass. If you agree with this text, FICO is bad for America and is bad for business. Please send your comments or any horror stories you may have experienced. We need to put pressure on the powers that be or FICO so it works better for the American middleclass. Better still, help limit or end these evolving and insidious practices by FICO. Pull the cloak off what many believe is a very dangerous organization.