Fair Isaac did not develop the FICO score for consumer use. And although it has become a de facto consumer credit “report card” it was never intended as such. In fact, the mechanics of FICO produce a score that, from a consumer perspective often makes little sense. But FICO is logical, and, for credit repair purposes, should be understood.
A Predictive Model
FICO is a predictive model. It uses a mix of factors to produce a number which is meant to communicate to prospective lenders (and others) the way you are likely to behave in the future. This is very different from a report card which grades your performance to date; this results in some superficially nonsensical results.
One of the most seemingly unfair FICO behaviors is to lower your score in response to an increase in your credit card balances, regardless of your payment history. This factor is currently given so much weight by FICO that if you use more than eighty percent of the available limit on a credit card you might experience a 100 point score drop, enough to cause havoc in your life if it happens at the wrong time.
All About Statistics
The reason for this treatment is completely objective. Statistics indicate that there is a positive correlation between high credit card balances and the occurrence of default. And in recent years the correlation has grown more pronounced. FICO’s job is to remain responsive to changes in consumer behavior, adjust the scoring model to reflect the changes, and protect their customers (lenders and others who purchase the scores).
Types of Credit
Another FICO peculiarity that has caught many of our credit repair customers off guard is their poor treatment of certain forms of consumer debt. We stress the use of mainstream credit cards (MasterCard and Visa) for credit score improvement not just because they work, but because the alternatives deliver noticeably less traction.
An Icy Slope
Trying to rebuild credit with store cards or furniture store loans is like climbing an icy slope. FICO, it is clear, puts less value on these forms of credit. There are two likely reasons they do so, the first being the relative ease of approval and the second being the often higher cost involved. Both could lead to budget busting financial stress. FICO does not act without statistical support, so it is easy to guess that there is a link between users of these easier forms of debt and increased cases of credit default.
The Real Key
The real key to understanding FICO is to grasp that the scores are not for you, they are for others that need a way to predict the risk of lending you money (etc.). It is not personal. Do you need help? Our credit repair program revolves around FICO. If we see an opportunity, be it common sense or purely technical, for you to boost your scores we will find it and help you find a way to live happily with FICO’s quirky ways.