April 1,2009

• FICO ‘Gouge'; Good Stuff, Pt.2
    Was their FICO Score lowered for reduced credit?

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  Now that we know who these people were, the important question is, "How were their FICO Scores affected?" It helps to know that this was a particularly stable time for FICO Scores. Because not much was happening elsewhere, we are able to magnify this area without significant distortion of ‘outside forces'. The strongest changes took place only with a 10% sub-segment of the total lowered-credit segment (about 20 million credit card accounts). There were, at least, 40 FICO-point changes for all 20 million credit card accounts in this niche. So, here are the results of the further refinement:

  • FICO Scores improved (6%): Projected to comprise about 12 million credit card accounts. Since score changes remained relatively flat (at least 90% of them), there is a strong probability that this population largely came out of the ‘Non-risk segment' (11% or about 22 million credit card accounts). Some never used their cards anyway, while the others faithfully paid their balances down every month (12 million of those 22 million accounts) and so their scores naturally improved. Improved, indeed. Their FICO scores improved by at least 40 points.

  • FICO Scores worsened (4%): Projected to be 8 million credit card accounts. Again, applying simple logic, we would expect this percentage to be very high after all, there are the ‘bad guys', right? Lol). Nobody's bad here, but some of us have seen better times. As was noted, these people were already on a downward slope. Their credit report was already checkered. That reason alone would certainly account for some of these figures. If they carried a high balance (probably most did), then certainly this would have exacerbated an existing problem. The greatest cause might be the FICO ‘Utilization Ratio' ( U:R ).

  The U:R (‘utilization ratio') is the comparison between how much you have borrowed and how much you could have borrowed. Is this on a card-by-card basis? Does one bad credit card wipe out ten other good cards? Outside of the FICO inner circle, speculation is rampant as to what that means. The only direct light on the subject coming from Fair Isaac's Corp. is how important the U:R is for predicting creditworthiness. All we ever get are these little tid-bits. But, when we do get one direct from FICO...it's like, as they used to say in the Navy: "Pure Gouge!".

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