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Contrary to your initial assertion, credit scores are built using real-world models based on historical data that indicate a debtor’s likelihood of repaying deb
by otterley 5y ago
Contrary to your initial assertion, credit scores are built using real-world models based on historical data that indicate a debtor’s likelihood of repaying debts. Fair, Isaac, and Co. (aka FICO) pioneered this technique in the 1960s; one founder was a mathematician and the other an engineer. This score helped creditors make more accurate decisions based on real data; before that, credit decisions were usually made by individual loan officers whose decisions were often based on how well they knew you personally and your standing in the community (and were frequently racist, often overly so).
Is the credit score system imperfect? Yes. Is it based on a mountain of bullshit? No.
(That said, I’m really sorry to hear about the tragedies that have impacted you and your family. I don’t think it’s fair that we don’t collectively insure one another for accidents, either.)
- lostgame 5y agoThe credit system is one of the most powerful weapons used for systematic racism and class discrimination today...how is it an improvement? :/ Especially, if; as you agree - it has no room for mistakes?
- otterley 5y agoThe subject’s race is not in a credit report. So that’s better, but as long as people look for other clues as to the applicant’s race (such as their name or address history), that’s going to be a problem. That’s not the credit report’s fault, though. We mustn’t let perfection be the enemy of continuous improvement.
- FireBeyond 5y agoThe issue is that now, credit scores -also- reflect how good a credit -consumer- you are, not just your risk profile. How profitable a customer are you likely to be, etc.
- otterley 5y agoDo you have a reference for this?
- enragedcacti 5y agoPaying off a loan early can often impact your credit score negatively despite being evidence in favor of your risk profile. In my case paying off my auto loan early gave me a credit score lower than before I had the loan in the first place.
- otterley 5y agoThat's not because it measures your value as a consumer, though. It's because the the accuracy of their risk estimation is greater when there are more open accounts to analyze. (And even then, the relative "penalty" is small.)
- enragedcacti 5y agowhy does an account have to be open to analyze it? Surely me successfully paying every monthly payment and having money to spare to pay off the loan early would indicate that my risk as a borrower is lower than someone who can barely make payments? If we were talking years down the line it should weigh less than an open account but my score dropped instantly after closing out the loan. Maybe there is a regulatory aspect I don't understand that restricts analysis of closed accounts or something. Barring that Occam's razor would suggest that it hurts your credit score because paying off a loan early deprives the lender of interest which makes you a less appealing candidate at a given rate. After all, credit scores are a product for lenders, if it didn't do this they might go to another bureau that does. Fundamentally the opacity of it all is a problem in its own right. We don't have any real insight into how the calculations are made but they dictate huge amounts of our lives.
- FireBeyond 5y agoHow about when the only change to your credit profile is paying down multiple accounts, on time and seeing your available credit increase, your credit utilization decrease, your account aging increase... ... and your score goes down by 20 or 40 points?