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FICO and the Credit Bureau Cartel

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Re: FICO and the Credit Bureau Cartel

#81

Post by officeplant »

JackFr wrote: post #66
WaitWaitWha wrote: post #43

> Even if a lender thinks the customer would be a good risk, the lender has to buy a FICO score regardless. This isn't completely correct. For a period I had no FICO score, yet I was able to secure a loan from a Credit Union. It did require me to show my assets and income flow, but the Credit Union was able to provide me with a loan. The score from what I have gathered when I learn really rewards those who remain in…

> For a period I had no FICO score, yet I was able to secure a loan from a Credit Union. The credit union was content to use its own capital and hold your loan to maturity on its books. (I'm presuming you were probably a banking customer of the credit union, though I realize not necessarily.) Non-credit union lenders though most often want to either sell your loan to investors or pledge it as collateral to borrow mon…

Meanwhile paying down my debt faster than I'm supposed to often leads to my score dropping a few points. I've also lost dozens of points for closing rarely used accounts to reduce my financial attack surface. It's all bullshit. I was in the mid 700's while struggling my ass off with debt only to drop into the high 600's for cleaning up my debt habits.

Re: FICO and the Credit Bureau Cartel

#82

Post by vundercind »

Aspos wrote: post #57

Twenty or so years ago Experian and FairIsaac were paid by USAID to help build credit bureau infrastructure in Kazakhstan. USAID also paid their legal departments to help draft a law which would govern the whole process. And guess what, in the result we got much fairer, more efficient, far more future-proof infra than the US has today. Gov licenses credit bureaus and runs its own one. Banks must report to all license…

A lot of things in the US would change for the better if we installed a new government for ourselves using the techniques we have when we assist or replace foreign governments.

There’s a ton of stuff we have and do, including some fundamental stuff (our system of voting, for one) that’s known to be really bad compared to the “state of the art”. But, in part because of some of those bad elements, we only ever get to apply better solutions for others, never ourselves.

Re: FICO and the Credit Bureau Cartel

#83

Post by Workaccount2 »

Zeetah wrote: post #76
Workaccount2 wrote: post #64

Earlier quoted context omitted.

I think the idea is in good spirit, but it's important to be aware that gov backed services often run at a loss indefinitely. It's impossible to compete with a business that doesn't need to make money to exist. So you end up with just the government service.

In many areas, the notion of government services operating at a loss doesn't make sense - police, fire department, armed forces, libraries, parks, etc.

None of those are links in a chain of private markets. They are their own government monopoly markets.

If the government is going to become the defacto credit rating agency, they might as well be the defacto lender. Obviously loan rejections and low scores will be unpopular and an easy lever to push on for more votes, so just ditch the credit ratings all together and have a government lender that lends taxpayer money for all loans at a flat-rate.

Which basically has happened already - student loans - and we all know what a rosey picture that is.

Re: FICO and the Credit Bureau Cartel

#84

Post by SpicyLemonZest »

Workaccount2 wrote: post #73
balderdash wrote: post #51

The ridiculous thing is that the FICO score is so focused on commercial profitability rather than risk. You get lower score if you as a consumer optimise your cost of credit, price shopping/taking advantage of new rates/offers… it’s really a credit and likely profitability score

I have an 800 score while always being tight with my wallet. The most valuable thing to lenders is someone who can 100% be counted on to always pay, even if things outside their control turn against them. People chronically fail to understand this, and end up putting themselves in financially precarious situations i.e. paycheck-to-paycheck living.

I do not have an 800 score despite never missing a payment on any account. I don’t know why my score is lower (they don’t tell you!) but my general understanding is that the original commenter is right and my score would be higher if I had more credit products.

Re: FICO and the Credit Bureau Cartel

#85

Post by buzer »

stevekemp wrote: post #78
WaitWaitWha wrote: post #43

> Even if a lender thinks the customer would be a good risk, the lender has to buy a FICO score regardless. This isn't completely correct. For a period I had no FICO score, yet I was able to secure a loan from a Credit Union. It did require me to show my assets and income flow, but the Credit Union was able to provide me with a loan. The score from what I have gathered when I learn really rewards those who remain in…

I guess from a certain point of view you're right, a credit score is a list of all the debts you've had an how you've paid them back. So somebody with no debt is "unknown", rather than the expected "good". In Finland we don't have credit scores, instead we allow looking up defaults. Which seems like a reasonably sane approach - known-bad borrowers find it hard to repeat that behaviour, and somebody with no history of…

> In Finland we don't have credit scores, instead we allow looking up defaults.

There is also the newly established The Positive credit register which contains list of all of your debts. Lenders must pull (started in April 2024) the information from there when they are making the decision to grant or deny the request. The report also contains your income for past 12 months (I assume those reported to Income Register). I'm not sure if there is regulation on if they actually need to use the data or not.

Re: FICO and the Credit Bureau Cartel

#86

Post by hnburnsy »

hnburnsy wrote: post #75
chollida1 wrote: post #32

Earlier quoted context omitted.

> Title insurance is a much bigger scam/cost. I wouldn't cut out Title insurance, I have two friends for whom it saved low 7 digits each due to fraud in one case and liens in another. It's incredibly important in today's market and I can't see how you can call it a scam, unless you also view car/health/life insurance as a scam as well, in which case we just disagree:)

It is a scam for two reasons... 1) The premium to risk cost is astronomical compared to other forms of insurance. 2) The owner's policy really only protects your equity (like if you put down 20%) but costs more or the same as the lender's policy (the other 80%) Payout rates by insurance type: title insurance - 1-2% car insurance - 70-80% (lately close to 100%) life insurance - 96-98% homeowners - 60-70%

Amongst the reasons it is a scam are...

1) The premium to risk cost is astronomical compared to other forms of insurance.

2) The owner's policy really only protects your equity (like if you put down 20%) but costs more or the same as the lender's policy (the other 80%)

3) 80% of the costs are paid to the agent as a commission

Re: FICO and the Credit Bureau Cartel

#87

Post by ensignavenger »

officeplant wrote: post #81
JackFr wrote: post #66

Earlier quoted context omitted.

> For a period I had no FICO score, yet I was able to secure a loan from a Credit Union. The credit union was content to use its own capital and hold your loan to maturity on its books. (I'm presuming you were probably a banking customer of the credit union, though I realize not necessarily.) Non-credit union lenders though most often want to either sell your loan to investors or pledge it as collateral to borrow mon…

Meanwhile paying down my debt faster than I'm supposed to often leads to my score dropping a few points. I've also lost dozens of points for closing rarely used accounts to reduce my financial attack surface. It's all bullshit. I was in the mid 700's while struggling my ass off with debt only to drop into the high 600's for cleaning up my debt habits.

Revolving accounts like credit cards using them each month and then paying them off is good for your score, fixed accounts like mortgages, car loans, etc, when you pay them down/off, the amount of credit you have drops with the balance, and once it is paid off the account is closed, so it actually drops your score. If you don't use a credit card (and increasingly for me, if I don't use a card enough) the issuer will likely close the account or reduce your available credit, which will reduce your credit score...

So yeah, it is a pain in the rear to maintain a very high credit score.

Re: FICO and the Credit Bureau Cartel

#88

Post by kmeisthax »

> In other words, national credit reports are foundational to modern American society, binding us to one another financially as a nation through a network of computerized records. And that national market of identity is relatively new. Until 1970, credit reporting was localized, mostly through coops of town bankers who hired detectives to investigate borrowers, collecting gossip from snitches about who drank too much, who was a Communist, who slept around, and so forth.

: Wait, it's all social credit?

: Always has been.

Re: FICO and the Credit Bureau Cartel

#89

Post by wiltonn »

idiotsecant wrote: post #37
miki123211 wrote: post #35

If you think this is a "capitalists being evil" problem and not an "regulators over-regulating" problem, you should pay particular attention to fragments of the article: > It’s not that hard to come up with a model for underwriting that is reasonably accurate; any bank with scale could probably do it. But FICO uses trade secrets, copyright, patents, or restrictive contracts to block anyone from doing so. > First, the…

I don't think the solution is less regulation. When you let the banks play fast and loose with the rules, they will. See 2008. The real answer is an open source credit model. We don't need a black box. Let private industry handle the credit line qctivity reporting part like they do now and just feed that info into an open source model. Done.

Agree with the open source credit model, and so do many governments. Open Banking is gaining traction, in Canada a new law called the Consumer Driven Banking Act was just enacted that aligns with UK Open Banking model. While the legislation does not explicitly call out open source credit model, the legislative frameworks are being setup that align with open source model. The government mandate is: "to establish a framework within which consumers, including small businesses, can direct that their data be shared among participating entities of their choice and to ensure that the sharing of data among participating entities is safe and secure." While the mandate does not call out the implementation method, this could be conceived as open source credit. Minimally it will chop down some of the legal roadblocks the incumbents use to maintain market power. I am surprised Matt doesn't mention Open Banking in the article, not sure if US lawmakers have been exploring this.

Re: FICO and the Credit Bureau Cartel

#90

Post by gosub100 »

xivzgrev wrote: post #67
steveBK123 wrote: post #12

I would point out that "400% increase in mortgage credit check fees" sounds probably a lot worse than the actual number - which is like.. $150 at the time you are getting a mortgage. Of all the fees associated with buying your average $400k home, I don't think the $150 credit check fee is the big pain point. Title insurance is a much bigger scam/cost. The various state & local taxes at closing are orders of magnitude…

Well that’s exactly the point. There was another recent article here on cartels that suck small amounts of blood from lots of people. Too small for anyone to individually care but collectively a lot! What’s particularly insulting is that credit scores are commoditized - they are free to go check. Technically it’s vantage score vs FICO but generally the same and definitely not worth $150.

For a while in the early 2000s and 90s they weren't free to read. It was outrageous: companies collecting data on us that can impact our lives but we need to pay THEM to see what they know about us.
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