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Big Problem with FICO Scores?

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Written by: Dolores Hark
Date posted: 9 March 2008

I don’t really think the FICO system can possibly be ultimately effective. Here is why, based on a profile I am highly familiar with.

For instance, a person with a modest income, let’s say $30,000 a year, has 2 personal lines of credit in the year 1999. These start at $300 and $700 maximum limits.

As time goes on, FICO scores rises and the holder is ‘rewarded’ with increases to the lines of credit. By 2004, the caps are now $2000 and $4000. Unfortunately the holder got a little sucked in and found herself hitting those caps.

So she takes up a 0% offer and opens a third line, which is automatically quite high to cover the debt transfer – it’s 6500.

Next she hits the 8200 mark in debt by late 2005. She also is at least at the 12,500 mark (or even higher) on the total cap for the three lines of credit.

She spends 2006 paying it off and the balance is 0 by 2007. During this next year, she takes note of a 6500 increase in line 1 – she calls to demand the increase is reversed. A few of the others slip her note. She is afraid that since these increases have now already hit her FICO, removing the non-requested credit line increase will hurt her score.

In 2008, she receives yet another heinous boost of 4000 on another line, which she rejects, after already missing another huge jump of 4000 in June of 2007 on that same card.

So in the end:
line 1 – 4200 (6500 increase reversed in 2007, or this would have been at least 10,500 – told company to freeze line)
line 2 – 15176 (failed to pay attention to this account which was not in use – it was something like 4000 back in 2004 when it was maxed out, balanced transferred out of and not used again since).
line 3- 14500 (4000 increase reversed in 2008 – still this was opened at 6500 in 2006 – would have been up to 18500 now).

So based on requested limits that total 7500 combined (300, 700, 6500) (i.e. what she actually initially signed on for), she ended up with a total of 33,676 in available credit.

With protesting any of these increases, the total would be 44,176 or perhaps even greater since these lines were subsequently frozen on request, once she realized that the limits were simply out of control.

So having had to forcibly reject 12500 – meaning the burden was on her to fight these increases and required telephone calls for action – she still ends up in 2008 with 31,376! What a bad idea to not pay attention to these increases.

Now let’s have a look at her income during the period, shall we?

In 1999, her income is around 30,000 when she opens the first two accounts. Her income peaks with the early internet boom, when her best take home year was in 2000 at 48,000 (at a 55,000 salary level at the end of the year). She is laid off after Q1 of 2001 and her income is much lower the next year – at maybe 25000 with partial salary for the year, unemployment, and freelance work.

She decides to go into business for herself and she is in full swing by 2002. Her income is quite lean, and some years nearly non- existent during the start up years. She borrows no money, but relies on the credit to get her going through 2003, but gets it all paid off by the next year. (She now just carries the personal debt, where that is largely helping her make up for lack of pay).

She has good and bad years, but in no year does her net take home income even come close the the 30K/ would be 44K in credit she now finds herself holding – almost to her shock.

It was a slow and gradual hook and bait.

Maybe this is legal – IN SOME STATES OF OPERATION – but is it ethical?

And what does a good FICO score really mean if a large part of it’s determination is giving people access to overpriced money at a level that is far beyond their actual living means? Some kind of fake savings to be called upon on a whim or in a crisis – but certainly ‘danger money’ because of the usurious rates many people are faced with – and these just keep creeping up due to lack of regulation. At this point, some people are looking at unjustified rate increases of nearly 30% per annum!

These are pretty scary figures! Given that this is at extremely usurious rates as well.

This overall behavior pattern coming from these companies is despicable.



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