Imagine my surprise when I learned that my son, fresh out of college and applying for a car loan, had a higher credit rating than I did, despite being 35 without ever missing a credit card or a mortgage payment. A car dealership explained that my son had virgin status simply because he had never borrowed.
Whether out of embarrassment, confusion, or curiosity, I decided to look at the rating, known as the FICO score, which is drawn for almost all consumer loans — 90% of credit checks, $ 10 billion. times a year. However, the more I dug, the more I discovered vague, even manipulative practices. Remember how three credit rating companies issued fake AAAs on subprime mortgages, which led to the 2008 financial crisis? The similarities are strange.
FICO is software from Fair Isaac Corp., which promotes itself as a “predictive analytics and decision management company”. Launched in 1956, Fair Issac began licensing its code in 1989 to the three national credit rating companies, Experian, TransUnion, and Equifax, to produce scores ranging from 300 to 850. The formula is secret, the recipe for Kentucky Fried Chicken loan.
We know a bit about what goes into a credit score: payment history in unequal parts, amount owed, length of history, types of credit. FICO doesn’t care if you’re paying your rent, utilities, and cell phone bill, or saving for a down payment on a house. An example of a floating model suggests that points are added for a long payment history, which makes sense, but deducted for doing too many credit checks or, oddly enough, for paying your credit card bill in full each month. rather than underpaying and carrying a balance.
There are lots of tips for improving your FICO score available, including reporting your credit card as stolen so that when you get a new one, you have two credit cards with a long payment history. I doubt it will work.