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Your Burning Credit Score Questions: Getting an 850, Women vs. Men, Why is it Called FICO?

May 9, 2011 By

Flame_Giacomo_Carena_CCFlickrIs it really possible to get a FICO score of 850?

I must admit that I have personally never seen a credit report with a FICO score of 850, which by default means my own credit score is less than this highest score.  However, I do know that it is mathematically possible.  If you don’t have an 850 score, don’t sweat it (I don’t), since lenders don’t require an 850 to give the most favorable terms.

Who is likely to have higher credit scores—women or men?

This question surfaces quite frequently—but more in the form of healthy competition between spouses for bragging rights for the highest score.  The usual assumption is that the person with the highest income has the highest score (not true, by the way).   To be honest, I don’t know the answer to this question, since gender isn’t considered when developing or generating a credit score.  A key reason is that lenders cannot discriminate based on gender.  Interestingly, gender can be used in credit scoring models in other countries and it can be predictive of future risk.

Why are they called FICO scores?

The company that creates the FICO score was founded in the 1950s by two gentlemen named Bill Fair and Earl Isaac and the company was called Fair, Isaac Company at the time.  The FICO score was created in the late 1980s and eventually became known as FICO scores within the industry (the “F” from Fair and the “I” from Isaac and the “CO” from company or corporation).

Just imagine if they had named the company Isaac, Fair Company instead.  Would you instead have an IFCO score today?  Sounds strange to me!

Got a question about credit scores?  Send them in (light-hearted or serious), and we’ll address them as quickly as possible.

[Featured tool: Get your free Credit Report Card from Credit.com]

Image: Giacomo Carena, via Flickr.com

Filed Under: Credit Card Blog Tagged With: , , , , , , ,

Your Burning Credit Score Questions: Getting an 850, Women vs. Men, Why is it Called FICO?

May 9, 2011 By

Flame_Giacomo_Carena_CCFlickrIs it really possible to get a FICO score of 850?

I must admit that I have personally never seen a credit report with a FICO score of 850, which by default means my own credit score is less than this highest score.  However, I do know that it is mathematically possible.  If you don’t have an 850 score, don’t sweat it (I don’t), since lenders don’t require an 850 to give the most favorable terms.

Who is likely to have higher credit scores—women or men?

This question surfaces quite frequently—but more in the form of healthy competition between spouses for bragging rights for the highest score.  The usual assumption is that the person with the highest income has the highest score (not true, by the way).   To be honest, I don’t know the answer to this question, since gender isn’t considered when developing or generating a credit score.  A key reason is that lenders cannot discriminate based on gender.  Interestingly, gender can be used in credit scoring models in other countries and it can be predictive of future risk.

Why are they called FICO scores?

The company that creates the FICO score was founded in the 1950s by two gentlemen named Bill Fair and Earl Isaac and the company was called Fair, Isaac Company at the time.  The FICO score was created in the late 1980s and eventually became known as FICO scores within the industry (the “F” from Fair and the “I” from Isaac and the “CO” from company or corporation).

Just imagine if they had named the company Isaac, Fair Company instead.  Would you instead have an IFCO score today?  Sounds strange to me!

Got a question about credit scores?  Send them in (light-hearted or serious), and we’ll address them as quickly as possible.

[Featured tool: Get your free Credit Report Card from Credit.com]

Image: Giacomo Carena, via Flickr.com

Filed Under: Credit Card Blog Tagged With: , , , , , , ,

Reader Question: How Do Multiple Mortgage Inquiries Impact Credit Scores?

August 12, 2010 By
QA "I was told that if I made multiple applications for a mortgage refinance in a certain period of time, that it would not impact my credit score. But this isn't necessarily true. My credit score has been lowered because of it and the banks aren't listing them as application for a mortgage. Where does the responsibility lay? Even when I tell a lender not to pull a credit report, they do (such as my current mortgage servicer). They weren't soft inquiries either. They ran it twice! Another lender ran my report five times last year and I only authorized it twice. I tried to dispute it but it's nearly impossible to dispute inquiries. What can the consumer really do about this issue?"

There is a lot of confusion surrounding when it is permissible for a lender to access your credit reports. There is even more confusion about inquiries and their impact on your FICO scores. First off, access to your credit report is strictly governed by the Fair Credit Reporting Act, section 604 "Permissible Purposes of Consumer Reports." It's rare that a lender will simply pull your credit report without a good reason, but I have seen it happen.

What you were told about inquiries is true, but not complete. There are some important details missing. Years ago FICO installed logic in their credit scoring models that measured mortgage, auto and student loan inquiries differently because of the fact that consumers would shop around for the best deal on these types of loans. This would lead to multiple inquiries but still only one loan. As such, it made sense not to penalize consumers who were smart rate shoppers, hence the different treatment of those types of inquiries.

Mortgage inquires do count in your score so whatever you were told wasn't 100% correct. They just don't count for the first 30 days they're on your credit reports. After 30 days they are fair game and do count. If there are other mortgage inquiries within a 45 day period then those multiple inquiries only count as one. The same holds true for auto and student loan inquiries.

The banks don't choose to categorize inquiries. That's not how it works. The credit bureaus set them up with specific loan or industry designations and any reports pulled by the lender is coded or identified as being from that industry or loan type. Example, an auto dealer will be set up with an auto related inquiry.

Simply telling a lender not to pull your report doesn't mean they can't. Remember, in the law it gives them specific scenarios where pulling a report is fully legal. You simply saying "don't do it" doesn't mean they won't. But, of course, if you think your lenders have violated the law by pulling your reports, then you certainly have the right to pursue it legally, which isn't easy and it isn't cheap.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

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New HUD Score Requirements Don’t Make Sense

August 5, 2010 By

HUD-lending-credit-score The Department of Housing and Urban Development recently announced that borrowers who seek an FHA loan, a loan insured by the Federal Housing Administration, must now achieve a FICO score of at least 500 for consideration. According to a CNNMoney article, this is the first time HUD has set hard and fast score cut offs. The questions are, what have they accomplished...and what are they thinking?

HUD’s new score requirements eliminate roughly 1% of the population. That’s right, almost 99% of the U.S population has a FICO score higher than 500. If HUD wants to mitigate risk then 500 was a shade too low (sic).

There is some sense behind the decision though. Because of their stratospheric FICO scores, consumers who fall below 580 will be asked to pony up a 10% down payment. This forces equity into the loan and helps to secure the lender when the loan goes into default (notice I didn’t say "if").

So for the newly minted 70,000,000 consumers who have scores below 650 don’t despair. HUD is still willing to lend you hundreds of thousands of dollars. It’s almost like someone hasn’t been paying attention.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Filed Under: Credit Card Blog Tagged With: , ,

Rescoring Credit Reports, What You Need to Know

August 3, 2010 By

John Ulzheimer talks about rapid rescoring on the Willis Report on Fox Business:

For those of you who don’t fully understand the mortgage underwriting process, welcome to the club. It’s confusing, cumbersome and produces an enormous amount of paperwork. One thing we do know for certain is the importance of your credit scores in the process.

There was a time when almost anyone with a pulse could qualify for a mortgage. You could lie on your application and claim to make much more than you actually did. No wonder the environment was ripe for abuse. Thankfully, there are now laws on the books that prevent much of the shady dealing.

However, a part of the process that was not addressed by the CARD Act or the FinReg overhaul was the process called restoring. This process, also referred to as rapid update and rapid rescoring, is the act of having changes made to your credit reports in a very short amount of time, normally 48-72 hours, that would result in a higher credit score. The mortgage lender, using some sort of score optimization software, would suggest that you make certain changes to your credit reports, normally a payment on a credit card, and then have the credit report updated quickly to reflect the new balance. At this point a new score would be calculated, resulting in perhaps an approval or better interest rate.

This is deceptive to lenders because it creates a short term illusion that you’re a better credit risk. The changes to your credit report data were not made through your normal credit management practices. They were made for the sole intent on increasing your credit score so that you could get approved for a loan, and the mortgage lender could get their commission. What’s the difference between two consumers both scoring 700? Well, one might have earned it the old fashioned way, by being a pretty good credit manager. And the other could have paid off a few credit cards and increased their 615 from only a few days prior.

The question is how are those two consumers going to perform going forward? The 615 will likely return to his credit usage ways and see his score quickly snap back to the low 600s. And the 700 will likely maintain his or her credit management practices and stay around the 700 mark. The bottom line is that the lender was duped and priced out both loans as if they were equally risky, while anyone who is intellectually honest would have to acknowledge that they certainly are not. But who cares? It’s not my money, right?


John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Filed Under: Credit Card Blog Tagged With: , , , ,
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