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The Almighty Buck United States

FICO Changes Could Lower Your Credit Score (wsj.com) 210

Posted by msmash from the shape-of-things-to-come dept.
Credit-scoring company Fair Isaac is making changes that will create a bigger gap between consumers deemed to be good and bad credit risks [Editor's note: the link may be paywalled; alternative source]. From a report: Changes in how the most widely used credit score in the U.S. is calculated will likely make it harder for many Americans to get loans. Fair Isaac, creator of FICO scores, will soon start scoring consumers with rising debt levels and those who fall behind on loan payments more harshly. It will also flag certain consumers who sign up for personal loans, a category of unsecured debt that has surged in recent years. The changes will create a bigger gap between consumers deemed to be good and bad credit risks, the company says. Consumers with already-high FICO scores of about 680 or higher who continue to manage loans well will likely get a higher score than under previous FICO versions. Those with already-low scores below 600 who continue to miss payments or accumulate other black marks will experience bigger score declines than under previous models.

Millions of consumers could see their scores rise or fall as a result of the changes, the company said. The changes are an about-face from recent years, when FICO and credit-reporting companies made changes that helped increase scores for some consumers, such as removing some negative information, including civil judgments, from credit reports. Credit scoring and reporting companies also recently started factoring in such information as bank account balances and utilities payments to help give consumers with limited credit histories a better shot at getting loans. Those recent moves can help revenue-hungry lenders identify more creditworthy consumers and make it easier for them to be approved for loans. Average FICO scores have been rising steadily following some of these changes and an improving economy.
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FICO Changes Could Lower Your Credit Score More

FICO Changes Could Lower Your Credit Score

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  • Wait a minute! (Score:5, Insightful)

    by CrimsonAvenger ( 580665 ) on Friday January 24, 2020 @02:14PM (#59652370)

    So, the new system is going to make it harder for people who are seriously in debt to build up more debt, and it'll make it harder to get loans with a history of not paying back loans?!?

    I'm not sure I'm seeing a fundamental problem here....

    • True, but it also then forces people with bad credit who really need a loan, say for a medical expense, to go to more dodgy or higher interest rate loans, hence perpetuating the cycle of poverty. I'm not saying a boatload of people with bad credit didn't get there largely through their own fault - my wife's sister comes to mind, who leases a new, very expensive car on a big loan every two years and lives in a huge house without a stick of furniture besides a mattress (no frame) because she can't afford any

      • Most hospitals have hardship programs that write off medical bills (and in the US, there's also medicaid when there's no other alternative out there), which obviates the whole loan sharking scenario. Bankruptcy can also remove medical bills w/o too much of an issue, by either removing the debt entirely (Chapter 7) or setting up a long-term partial repayment plan (Chapter 13).

        • I've not gone through it, but it is my understanding that some debt, like student loan debt, cannot be discharged through bankruptcy. I've also been told that finding a lawyer to actually help you though the process of bankruptcy is difficult, because they're naturally enough concerned they won't get paid.

        • and in the US, there's also medicaid when there's no other alternative out there

          The threshold for Medicaid eligibility in many states is extremely low. 40 hours/week at minimum wage is above it in many states. So if you make more than "destitute" in the previous year, it's not available.

          Also, bankruptcy isn't cheap. Attempting to navigate it without a lawyer is even more expensive.

          It's almost like the people talking about "financial responsibility" as the primary issue don't actually know just how much luck plays into "financial responsibility".

    • Re: (Score:2)

      by sinij ( 911942 )

      I'm not sure I'm seeing a fundamental problem here....

      The fundamental problem is that our economy is decoupled from "fundamentals". Instead, most of the growth is in getting people deep into debt. Someone borrowing $10K today creates financial revenue today and not when they fully repay the loan.

      The last time someone checked faulty assumptions, housing market collapsed and economy took 50%+ write-off across the board. Nothing have changes since then.

    • Re:Wait a minute! (Score:5, Insightful)

      by Dynedain ( 141758 ) <slashdot2NO@SPAManthonymclin.com> on Friday January 24, 2020 @03:04PM (#59652542) Homepage

      I agree that credit ratings need to better reflect an individual's ability to pay debts. However the fundamental problem is that the FICO score is used across our economy for things unrelated to that.

      Examples:
      * Employers doing credit checks on applicants
      * Phone Carries, Cable, and ISPs doing credit checks when signing up for a service plan
      * Landlords doing credit checks on potential tenants

      None of these have anything to do with incurring debt, yet they are done all the time.

      These kinds unnecessary checks create a feedback loop making it harder for those with financial problems to correct their situations.

      Long-term contracts are NOT debt. Tying them to a metric designed for evaluating debt worthiness is a huge mistake.

      • Employers and some of the others can check your credit REPORT. They can't check your FICO score. The credit report shows factually what happened - you reliably did what you said you would do, or you keep borrowing money and not paying it back.

        When you get a $800 phone "for free" and agree to pay $100 / month for 36 months, that IS a loan. It is a debt. So yeah it makes sense they check whether or not you pay your debts. It's a loan with very bad terms - you're getting ripped off when you pay about $1,8

      • Re: (Score:3)

        by eth1 ( 94901 )

        I agree that credit ratings need to better reflect an individual's ability to pay debts. However the fundamental problem is that the FICO score is used across our economy for things unrelated to that.

        Examples:
        * Employers doing credit checks on applicants
        * Phone Carries, Cable, and ISPs doing credit checks when signing up for a service plan
        * Landlords doing credit checks on potential tenants

        None of these have anything to do with incurring debt, yet they are done all the time.

        What? I'll agree with first one, but not the other two. You've obviously never had to evict someone. It can take ages, and they can incur quite a debt while the process grinds on. As a landlord, the ability of someone to pay what they owe is very important.

      • Uh, guess again.

        If you sign a one year lease on a place for $1000/month, for example, in almost all leases, you will find you just incurred a debt for $12000, payable in installments of $1000/month.

        If you decide you want to break your lease and move out, you are still responsible for the balance owed.

      • Comment removed (Score:4, Informative)

        by account_deleted ( 4530225 ) on Friday January 24, 2020 @05:20PM (#59653160)
        Comment removed based on user account deletion

    • I always think that credit reporting/scoring agencies have a perverse incentive to marginally raise borrowing costs to otherwise good borrowers. Which is why you see the scoring industry always trying to add in non-financial additional scoring inputs, like your driving record, or use perverse penalties, like punishing occasional borrowers or those who do not carry balances or pay off loans early.

      Lenders want to be able to charge the maximum interest premium possible on loans, but are forced to compete for

      • Re: (Score:2)

        by mbkennel ( 97636 )
        Credit scoring and credit reporting agencies don't earn money from lending. Only a bank or other regulated institution can do that.

        "Creating new stratifications among otherwise good borrowers allows lenders to downgrade otherwise good credit risks into marginally worse credit risks and charge them marginally higher interest rates. These borrowers aren't really worse credit risks, so the added risk premium charged is just pure profit."

        If one lender charges more for a low risk customer, then a smarter lender

    • So, the new system is going to make it harder for people who are seriously in debt to build up more debt, and it'll make it harder to get loans with a history of not paying back loans?!?

      I'm not sure I'm seeing a fundamental problem here....

      The part about downgrading people for taking on too much debt and not paying on time? That's fine. Hell that's overdue, and the way things should be. But the part about punishing people for taking out personal loans? That's Pure T Bullshit. A personal loan from a reputable bank or credit union should be scored the same as any other kind of conventional loan. There's nothing strange or dangerous about personal loans, and people use them for a variety of means.

      • Re: (Score:2)

        by mbkennel ( 97636 )
        " A personal loan from a reputable bank or credit union should be scored the same as any other kind of conventional loan. There's nothing strange or dangerous about personal loans, and people use them for a variety of means."

        A personal loan without collateral is different from a mortgage loan with collateral in risk.

    • I'm not sure I'm seeing a fundamental problem here....

      Yay! It says my credit score is going up!

      Oh, wait, it doesn't matter, I don't take out the crappy loans that people with bad credit are dreaming about when they imagine having a higher score. LOL

    • Nope, nope, nope.

      Get back to reality soon please. Your FICO score has less to do with you being able to get credit and more with how much getting credit is going to cost you. Basically your "interest rate"

      On the surface this will likely fool folks like yourself into thinking this will create a more responsible credit lending environment when it fact it's only going to make credit more expensive. The cost of everything is going up because our economic outlook is looking more and more catastrophic each day

  • The ad at the top of the page when I clicked on this article is for Free Credit Score and Credit Check for $1

  • Anything below 700 is considered barely average, not "already high".

    • Most gov't mortgage programs (VA, FHA, USDA) consider a minimum average FICO score of 620 to be perfectly fine. Most lenders (for any good or service) consider a score of 720 or higher to be "excellent", and qualified for the best rates they offer. 700 qualifies as "good" in most legit lenders' eyes.

    • My bank lists "Good" as 680+, but a lot of the loans require the "Very Good" category.

      It is like soda sizes; there is no "small," and "large" is the second smallest size.

  • The USA has a financial one. Otherwise it's much the same.

    Tells us a lot.
    How China is all about social control (like conformism).
    And the USA is all about financial control.
    In both cases, the purpose is to turn you into a slave.

    I wonder what other forms there may be...

    • Re:Funny... China has a social credit system. (Score:4, Insightful)

      by TechyImmigrant ( 175943 ) on Friday January 24, 2020 @02:29PM (#59652434) Homepage Journal

      >In both cases, the purpose is to turn you into a slave.

      Conforming to societal norms doesn't make you a slave. It makes you not be a pain in the arse.

      • Re: (Score:2)

        by Calydor ( 739835 )

        That depends on how tight those societal norms are. Do you want to go back to enforcing that only man and woman can get married, no public shows of affection, no bare skin shown in public etc.? Because that's what you get when you want to enforce 'conforming to societal norms' under threat of punishment.

      • >In both cases, the purpose is to turn you into a slave.

        Conforming to societal norms doesn't make you a slave. It makes you not be a pain in the arse.

        "Conforming to societal norms" is a really fuzzy, broad idea. It could refer to societal norms in pre-Civil War America, where societal norms required black people to be slaves. Or it could refer to stopping at stop signs. The problem is trying to pigeon-hole fuzzy, broad ideas.

    • Not completely correct. I can, now that I have a house, opt out of it at any time, and I can just buy used vehicles with cash from here on out, or leave deposits w/ the utilities and such. You'd be amazed how much money it saves long-term.

      On the other hand, the average Chinese citizen can never leave the matrix.

    • One difference; social conformity gives you a higher social credit score.

      Financial conformity gives you a low financial credit score.

      Getting a high financial credit score requires discipline, and a rejection of the mainstream consumerist pop culture lifestyle.

      Financial slaves have low credit scores. People with financial freedom have high credit scores.

  • Yes, it is a figure of speech I know. Well, at least, for now. But given the privacy violation, tracking and content customized for eye-balls, someday soo the *your* would specifically mean you, not a figure of speech.

    Anyway if the score lowers or raises for all proportionally or by delta it would not matter. But what the creditors want is not people paying off their loan in time. They want people who would keep the loan open and keep paying interest. All these changes are done to identify who would bring

  • Meh (Score:2, Insightful)

    by Anrego ( 830717 )

    They best way to have good credit is to just be financially responsible. Pay your bills, don't max out all sources of credit, check your credit report occasionally just for accuracy and the rest will usually sort itself out.

    Trying to game the system by maxing out your available credit to reduce utilization and other shenanigans are imo just silly. You also don't need to pay a dime of interest to build your credit rating up, and doing so is unlikely to build it up any faster.

    About the only "gaming" type thin

    • Re:Meh (Score:4, Interesting)

      by Train0987 ( 1059246 ) on Friday January 24, 2020 @02:37PM (#59652456)

      A big part of the problem is that credit scores are determined by secret black box methodologies that nobody knows or understands. I've spent the past 18 months trying to build a decent score without ever having a credit history before and trying to get advice on how to improve is like visiting a voodoo with doctor. Go to three different financial advisors or bankers and you'll get three different, fully contradictory paths. It's infuriating.

      • A big part of the problem is that credit scores are determined by secret black box methodologies that nobody knows or understands.

        This ^^^

        These systems should not be a black box. If they are as reliable and accurate as they should be, the logic involved with determining these scores should be a blueprint for how to build solid fiscal foundations in your life.

        We shouldn't be judged by something we can never know.

        • I'm on the fence with this one. By keeping the scoring a secret, folks would be less successful in gaming the system. I chased an 850 a few years back just to see if I could and over time my score went up a few points, down a few, stayed the same. It was a bit irritating not knowing the secret sauce. I bet if they said, "here is exactly how your score is calculated", you would get the FICO nerds specifically gaming the system, thereby skyrocketing their scores.

          • Yes, but I'd argue that's not a problem. If the scores are useful, obtaining a high score should be a good thing for everyone.
            And if the scores aren't that useful, they should be improved.

            Either way, society wins.

      • A big part of the problem is that credit scores are determined by secret black box methodologies that nobody knows or understands.

        My bank gives me free access to a tool that shows me my credit score, lists my current data that it is based on, and presents a side-by-side where I can put in theoretical changes to different values and see how my score changes. What if I took out another loan, how would score change? What if I had my account another 5 years, how would my score change? What if my average daily balance was higher or lower, how would that change my score? What if I took out a home loan, or an auto loan, or a personal loan, h

        • I've tried those tools too but they are only guesses with no basis in reality from my experience. One time I followed the suggestions to the letter only to see my score drop.

      • People say the same about dieting, how there are so many options and it's so confusing. It's not. Eat less than you burn. Period.

        For your credit score, take out small, reasonable chunks of debt relative to your income and pay them back on time. Not all that complicated. If you have 0 credit history, take out a secured credit card, use it sparingly and pay back on time. Then get an unsecured card, do same. Take out auto loan, pay back on time. Get a bigger credit card, pay back on time, etc... It's really no

    • Re:Meh (Score:4, Insightful)

      by dgatwood ( 11270 ) on Friday January 24, 2020 @02:52PM (#59652500) Homepage Journal

      About the only "gaming" type thing I would recommend is to get a few lines of credit going early (even if you don't need or really use them). When you go to buy a house, most lenders are going to be looking for something like 3 open lines of credit for at least 2 years or similar. If you've not so much as signed up for a credit card by that point, you may have some difficulty.

      It's not just the number of credit lines; it's also the size. When I went to get a loan for my Model X (two years ago), bank after bank refused to give me a loan for more than about 2x my previous highest car loan, which was still only half the cost of the car. Had Tesla not eventually found a credit union that would give me a larger loan, I would have had to liquidate stock with a higher yield than the loan rate, which would have been pretty stupid.

      So having low outstanding debt, large savings, and a high credit score still isn't always good enough. When people who could pay cash are having trouble getting a loan, I can't even imagine someone who can barely afford the loan getting one....

      So gaming the system isn't necessarily a bad idea, because the system right now is badly rigged against people who don't take on debt.

      • When people who could pay cash are having trouble getting a loan, I can't even imagine someone who can barely afford the loan getting one....

        Cash is not factored into the credit score, so it doesn't tell you anything at all.

        If you can pay cash and wanted a loan anyways, you might not actually have as high of a credit score as you think you do, relative to other borrowers.

        Also, it might be implied in your story that you wanted low or even zero down. If you have a high credit score, you shouldn't be getting rejected, you should be getting told some minimum down payment you'd have to make.

        Also, it really helps if you find a high quality financial i

    • Re: (Score:2)

      by sinij ( 911942 )

      They best way to have good credit is to just be financially responsible. Pay your bills, don't max out all sources of credit, check your credit report occasionally just for accuracy and the rest will usually sort itself out.

      Also, don't forget to add: Don't get laid off in cost-cutting; Don't get your job swallowed by outsourcing; Don't get sick; Don't get your identity stolen; Don't divorce; Don't get sued.

    • I agree that ultimately, just being financially responsible for a long enough period of time will result in you having a "good" credit score, regardless of anything else you do. But over the years, I've seen a lot of stuff I consider nonsense that goes into their equations.

      For example, they care a lot about how long your lines of credit have been opened and how old your oldest one is. The problem with that is, as a responsible credit card user who has good enough credit to start receiving a lot of pre-app

      • The financially smart thing to do is to close out some of your older cards that you probably accepted back when your score was lower

        You shouldn't have lots of cards, and if your credit score went up, you should be able to negotiate a better rate.

        You have the information about how it affects your score, but it sounds like you haven't actually internalized it and included it in your analysis of what is "financially smart."

    • They best way to have good credit is to just be financially responsible. Pay your bills, don't max out all sources of credit, check your credit report occasionally just for accuracy and the rest will usually sort itself out.

      No. Not always. Not under the current system.

      Both I and my parents both took credit score hits when we paid off our debts. They did it first and told me what happened to them, and sure enough, when I paid my house, car, and credit card off a few months back, my credit score went down not up. Not a lot, mind you, but what should have been proof of financial responsibility on my part was instead taken as "This guy doesn't have enough debt for us to properly judge him anymore."

      The current system encourages deb

      • Re: (Score:2)

        by Jaime2 ( 824950 )
        Did you close the paid-off accounts? You should have paid the car and house way ahead, and paid the credit cards down to zero, but not closed any of the accounts. You may have destroyed the "used credit/available credit" component of your credit rating by turning it into a 0/0 instead of 0/20k. Closing the accounts gives the bureaus a signal that you don't trust yourself with credit cards and the only way you'll stay out of debt is to close them. Obviously, a person with this type of personality isn't the t

      • If you merely "paid off" your credit card your score would go up. Perhaps instead you closed the account?

        Having a mortgage does make your score go up, because it means you're financially rooted to debt, and mortgages are lower risk than other loan types because people don't want to lose their home.

        If you have some need to get your credit score up, just take out a really small mortgage.

        It isn't that they can't judge you, it is that they have more understanding than you do about the psychology of debt in diff

      • Did said minor drop actually change your life for the worse? Life isn't about having the highest possible credit score, as long as it's 'good' you won't run into any real problems, the difference between 790 and 820 isn't worth worrying about.

  • Oddly enough (Score:4, Insightful)

    by whoda ( 569082 ) on Friday January 24, 2020 @02:48PM (#59652488) Homepage

    It could raise it too.

  • as I discoverd many years ago when I tried to get a loan to buy my first house, is that if you *never* contract a loan or get a credit card - which is what I do - then you're considered a risk to lenders and you don't get your loan.

    Let me repeat that: if you never spend the money you don't have - which should demonstrate you're serious and responsible with your personal finances - then nobody wants to lend you money.

    The credit system is extremely fucked up, and entirely geared towards fucking up poor people

    • Let me repeat that: if you never spend the money you don't have

      Sorry, but that is bullshit.

      You can easily get loans and use credit cards, with money you DO HAVE. I have no credit card debt and substantial savings, but I use credit cards all the time - I have more than enough even when I buy to pay off everything, but there are substantial benefits to using a credit card.

      Similarly, you can save the money to buy a house outright then still take out a loan - and simply pay it off way sooner, but then you have

    • The FICO system does not evaluate your net worth or income. It is meant to be a reflection of debt history. So if you don't have debt history, then naturally you would have a low score.

      The credit score should be only one of many factors used to decide whether to issue you a loan. Using it as a be-all-end-all single decision point is a massive mistake. Any bank doing so is opening themselves up to huge risk.

    • Your credit score measures your ability to repay debt, not your overall fiscal responsibility. If you don't have any history, the easiest thing to do is talk to your bank or preferably a Credit Union, and open a Line of Credit. They usually offer credit cards where your limit is based more on your banking history than credit score, so get one and use it for your regular monthly expenses. And when buying a house or car, the larger your down payment is the easier it will be to get a loan. Even with no history

    • Re: (Score:2)

      by eth1 ( 94901 )

      Let me repeat that: if you never spend the money you don't have - which should demonstrate you're serious and responsible with your personal finances...

      This is not entirely correct. I can get an auto loan for under 2% interest. My investments right now make more than that. Thus, I'd be an idiot to take $50k cash and buy a car instead of taking out a loan at 1.75% for the car, and investing the $50k for 2-5%.

      I personally have both a mortgage and a car note (both under 2% APR), and enough assets to comfortably pay them both off, but I don't for the above reason.

    • How is that messed up?

      If you have no historical proof that you can take on and manage a large debt, then why would a bank trust you with a big loan?

      Them not giving you a loan is not because they think you are irresponsible with your finances. It's because they are uncertain whether you would be or not.

      Uncertainly casts doubt. They would rather give the loan to someone who has tangible proof that they can take on a big loan and manage it responsibly.

      Trust is earned, not granted by default. I bet most peop

    • If you are seeking to borrow money, you are seeking to spend money that you do it have.

      If you do not have a history of spending money you do not have and paying it back, then you are rightfully considered a risk.

  • Bad credit happens sometimes (Score:3)

    by cordovaCon83 ( 4977465 ) on Friday January 24, 2020 @03:42PM (#59652682)

    I know that no one that reads Slashdot has ever had a run of bad financial luck, but it happens to real people sometimes. Lack of sympathies aside, this is not only a potential indicator of a coming recession - it's practically a self-fulfilling prophecy. Issuing less loans hurts the banks' bottom line as they pull in less income. Less loans means less consumer spending. The housing market and auto industries usually take these the hardest. The banks will get to charge higher interest rates for people with lesser credit. If the banks wanted to do that, they should've just twisted The Fed's arm to raise interest rates.

    This is only going to punish the poor, I fear.

    • "This is only going to punish the poor, I fear." Most things do. And yet they voted Trump into office, so my sympathy for them is small.

    • This is only going to punish the poor, I fear.

      It may in fact benefit the poor, because they shouldn't be taking out credit. It becomes more desirable when you're poor, but credit has a cost, it might actually be a luxury.

  • The last line in the article is 100% inaccurate. I wouldn't take little stock in the rest of the article as a result:

    ... don't get any more credit than you need.

    Credit scores rely on utilization rate. If you use 10% of your limit vs 5%, that's going to negatively impact your score. Obviously, this implies that for the same spending amount, having a higher credit limit causes that percentage to decrease.

    I see my credit score fluctuate 10-15 points from month to month fully driven by this, even just changi

  • Credit score (social & money) is how the pecking order in China works, per se. Eventually it will come globally, because the globalist want it that way.
  • I'm not taking out any loans or debt anytime soon, and I've already paid off my mortgage. Any reasons that I'm forgetting as to why I should be concerned?

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