Why aren’t the rules just given?

When most people start being educated about how the FICO scoring system works some of the most common responses are; “that is crazy”, “that doesn’t make sense” and “why can’t they just tell us the rules!”

Just in case you are not aware, FICO scores are designed not to be common sense.

The purpose of the FICO score is to predict the statistical chance of a consumer being 90 days late of more in the next two years, that is it. The key word there is predict, or predictive. So don’t get hung up on trying to add common sense into the equation, because unfortunately that will just confuse you more.

To better understand this whole process or system it is helpful to understand how the model was created in the first place. Fair Isaac (FICO) went to the credit bureaus and requested 1.5 million random credit reports; two years later they went back and requested new reports on the same 1.5 million people.

From there they started to find similarities between the reports more importantly between the reports of the individuals that had become 90 days delinquent or more on a debt during that course of time. That is how the FICO scoring system that we all know now was created. As you can see it is all about predictive information. Why that is so important to know is because now you understand why FICO is not in the practice of sharing much information about their model.

The more information people know about the model, the less predictive the score becomes. If you know all of the factors that will hurt or help your FICO score more people will change the things they do so their score will improve. As people do this, the model loses some of its value. FICO doesn’t want you to know the rules and the rules are not common sense, they are all about predictive information.

Lenders don’t know how the model was created or the ways your information is being valued, they are just looking at scores and then based on that score, they have done research to know if they will approve you or not and also what rate you will receive. The FICO scoring system has made the world of credit much more efficient and streamlined.

Having said that, the more things that we learn that will positively affect our score the more money we will save. To illustrate just how important this is The Consumer Federation of America found that consumers could save $28 Billion a year in lower credit card finance charges if they improved their credit score by 30 points!

The rules are not going to change nor is the process going to change any time soon. The system is the way it is and we all need to become as educated as possible, or just continue to waste money by having higher interest rates.

The biggest challenge that we as consumers have is not finding information about FICO scores, but finding correct information. The world of credit has become cluttered with new companies sprouting up every day.

All of them have some new way of packaging a product that will either help improve your score, allow you to monitor your score or save you all kinds of money on your current bills.

The challenge for us as consumers is to sort through all of these offers and find out which ones are actually basing their education or advice on actual factual information. To help you with this, one of the first things you need to look for is if the advice you’re getting is being based off “credit scores” or FICO scores. Many companies are using “credit scores” as a way to get the attention of their potential customers.

A FICO score and a “credit score” can be summed up quickly as they both are evaluating the information on your credit report, and that analyzed data then produces a score.

The big difference is just about every lender is only checking your FICO score, not many people or industries care about any of these other “credit scores” or models. So if no one uses those other models to determine your credit worthiness, then why should we care about them? The answer is we shouldn’t. Why get advice on any model or system that is basically irrelevant when it comes to getting a loan? When it comes to credit scores FICO is king.

Knowing that FICO is not in the habit of publishing their model, it is pretty safe to guess that just about all of these new companies are either purely guessing about the FICO system, or they have created new ways to sell you information based on some other “credit scoring” model. Long story short, they are teaching you how to improve a score that no one cares about.

Make sure any product or service that you are buying or getting advice from is actually giving you your FICO score or information that is FICO factual. Most of these credit monitoring systems or credit score simulator systems will tell you if you read the disclaimers that they are not tied to FICO in any way and they are evaluating your “credit score” based on some other model than that of FICO. Knowing this doesn’t make the products completely worthless, but in a lot of cases pretty close.

Potentially the only thing worse than not knowing anything about our FICO score, is paying for something that we think will help us improve our FICO score only to find out we just became an expert on a model that is basically worthless.

If you have any questions or just need some Credit Repair advice — Please contact me at: 970.302.5185

Author: Dan Beck

Dan Beck is a credit repair expert who teaches consumers how to create an "A Rated" credit profile. Would you like to receive a FREE Consultation with Dan? If so, click here.

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