Oh man, those engineers at FICO must be having themselves one rip roaring laugh right about now. They pulled the fast one of the year on November 29th when they supposedly disclosed FICO score point values to Liz Weston from MSN. Ms. Weston, who is one of smarter consumer credit journalists, took the bait hook line and sinker and published this article soon thereafter.
http://articles.moneycentral.msn.com/Banking/YourCreditRating/weston-5-ways-to-kill-your-credit-scores.aspx?page=1
Essentially what happened was FICO simulated the impact of a variety of credit behaviors on FICO scores of both 680 and 780. The score “damage” was summarized into the below chart. Weston’s article was titled “5 Ways to Kill Your Credit Score”, which to me means that the article was simply meant to illustrate that doing one of the following actions can hurt you…and that your should avoid them at all costs. The problem is the info is already being misinterpreted and abused.
Here’s where the fun really begins, what FICO did not disclose and what Ms. Weston might now know is that four of the five actions listed above will cause your credit file to be scored in a new scorecard. What this means…well, what this means is complicated. FICO scores measure your credit file’s potential risk by scoring it using a unique algorithm specifically designed for your file type, called a scorecard. That means if you have a bankruptcy then you’re scored in a bankruptcy scorecard. If your credit file only has one or two accounts then it’s scored in what’s referred to as a thin file scorecard, and so forth and so on.
Point being, all of our credit files are not scored the same way and not using the same FICO formula. Four of the five actions above are negative. And, when a clean file suddenly is hit with something negative it will go from essentially a “clean credit file” scorecard to a “derogatory file” scorecard. The result is a completely different measurement for EVERYTHING on your file. So adding a foreclosure or a settlement or a 30-day late payment or a bankruptcy to your credit file doesn’t “cost” it the points you see above. It causes everything on your file to have a new value so the score change can’t be attributed just to the negative item. The score change has to be attributed to the change in scorecards.
Next, not all 680s and 780s are created equally. Meaning, your 680 might have been caused by a completely different set of credit circumstances as my 680. Same goes for the 780. Case in point, John Ulzheimer, a credit expert who has forgotten more about credit scores than most people know, ran similar simulations on his own personal credit reports using the myFICO website tools. It just so happens that Mr. Ulzheimer’s FICO score for the simulations was also 780. This is perfect because I’m about to illustrate just how different FICO’s hypothetical 780 is from a real credit report with the same score of 780.
The score damage on the original 780 in FICO’s simulation of filing a bankruptcy was a negative hit of between 220 and 240 points. On Ulzheimer’s real credit file with a real FICO score of 780 the hit was between 195 and 255 points. Missing a payment on an account that was current, also known as the dreaded “30-day” late, caused FICO’s FICO score to drop between 90 and 110 points. On Ulzheimer’s 780 FICO score the same 30-day late payment caused his score to drop 40 to 75 points.
As you can see the point differences for the exact same action on the exact same FICO score (780) was anything but exactly the same. Ulzheimer even trumped Weston by re-interviewing FICO’s Public Affairs Director, Craig Watts. He was able to confirm from Watts that the examples in the FICO chart were “hypothetical” and “could vary significantly” from consumer to consumer. You can Ulzheimer’s his full article here.
http://www.credit.com/news/experts/2009-11-29/real-fico-score-damage-point-amounts-clarified.html
As interesting as the MSN article is and as hard as it is for me to say this, I believe writing this article was quasi-irresponsible. Not so much because of the content was wrong, because it wasn’t. As I said, Weston is right at the top of list of credit journalists who cover the industry. The problem as I see it is you could have disclaimed the charts and results with “this is just a hypothetical example” a dozen times and people are still going to focus on the point differences and believe them and think that they now know how many points things are worth, which will be an incorrect assumption in almost every case. This will lead to more consumer confusion on a topic that’s already confusing as hell.
My point is already being proven. Within two days of the publishing of Ms. Weston’s article two separate writers picked up and misrepresented the data. Instead of interpreting the information as a general approximation of what COULD happen to your score if you made various mistakes, the data is purposely being positioned as a new breakthrough into FICO’s black box. The titles of those two article are “FICO Reveals How Common Credit Mistakes Affect Scores” and “FICO Reveals the Impact of Their Credit Scores on Consumers”, the second title making absolutely no sense and neither being truly accurate.
Look, I recognize that these are simple “search engine content” pirates and they’re just jacking and using someone else’s content to benefit their own affiliate programs. Point being, they’re never going to get it right and they don’t care because they just want the keywords for their websites to attract search engine traffic for certain key credit terms. The problem is this stuff gets picked up and spread all over the world wide web and inevitably finds it’s way into credit related chat rooms, blogs, forums and even legitimate media and thus takes on an air of legitimacy.
It would have been great if Weston had thought about this before she published her story.
No comments:
Post a Comment