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Three Tiers of FICO Score


I work for a really large mortgage company, and as I watch the news of late about defaults rising and home sales stagnating and subprime lending cease as we've known it, I have a judgment, and then suggestions.

I think the means by which we measure a person's credit rating is broken. We use this thing called a FICO score, which is managed by the companies Experian, Equifax, and Transunion. Frankly, they do a lousy job. A review of anyone's credit report will generally find inaccuracies, redundant entries, and in my view, an incomplete picture. In the year 2007, it seems to me that there's a better way. Technology allows for that, and a person's FICO score is the backbone of individual financial prowess. Something so important shouldn't be so carelessly managed. Indeed, a cottage industry has sprung up to help people monitor their credit report.

My suggestions:

1) Vendors today who wish to sell goods in the marketplace have to get a barcode. It doesn't cost a lot of money to get one, and it does a good job of making each item in a store unique and easily traceable. Why don't vendors who bill anything that might appear on our credit report get a unique ID to easily identify and trace them, and then whenever an item appears on our credit, it shows the vendor's unique ID and our account number with that vendor. That should get rid of the problem of duplicate entries.

2) Why do we have a single FICO score? That's dumb. All that any vendor cares about at the end of the day is that a consumer pays the money they owe. If you get a loan, make your payments. If you have a credit card, make your payments. If you go to the doctor, pay the bill. That's all they care about.

But here's the truth: how a person performs in paying off their house has no relevance at all to how they pay their dentist.

So why do mortgage lenders take into account how a person pays the dentist when sizing up their ability to make a mortgage payment?

Answer: because it's the only system we have.
Subanswer: maybe because it allows them to charge more money for the loan in interest.

But in a time of tightening credit and better technology, the market will find a way around this. People still need homes.

I think there should be three tiers of credit scoring.

Tier #1 is your home. It's either your rent or your house payment. Rent isn't tracked like a house payment, but it should be. It indicates how you would pay for a home loan. I think that utility bills should also be stacked up in this tier. You're more of a risk of not paying your home loan as expected if you let the lights go out.

Tier #2 is voluntary credit. Credit cards, student loans, car loans - anything where you fill out an application and apply for credit with a vendor.

Tier #3 is involuntary credit. Doctor and medical bills, parking fines, library late fees that you forget to pay. You didn't seek out these bills - they just happened to you.

This is a more complete picture of how we pay our bills. When getting credit, let's compare apples to apples. I also think that a better system would greatly speed up the mortgage process. Many lenders today - especially those who do/did subprime lending - waste time looking at the merge of the Experian-Equifax-Transunion credit report. If credit scoring was split into three tiers, there would be no need for that. And for those that have never applied for a home loan, their rental history provides the information and is demonstrated through their Tier 1 scoring. That doesn't happen today.

That's my two cents...


by Brett Rogers, 8/28/2007 9:14:46 AM



There are currently several scoring models available to anyone willing to offer credit.
However, I truly agree that Utilities and Leases should be required to report as well.

What baffles me is how you can have a collection for a past unpaid phone bill, but they never had to report your positive payments with them in the first place. Seems awful one-sided and creates room for too much negativity, and kind of promotes the "who-cares" attitude people get with these kind of debts.

I believe there should be a credit system similar to what you described, including a heavily rewards based educational system, geared towards educating and notifying consumers of specific score increases or reductions based on their 24th mortgage payment for example, or it could be an increase of 30 points for paying off a collection or charge off. An educational system based on rewards would start to encourage people to pay on time rather than give up.

The bar codes should really exist with a singular Universal Identity Card, that controls the entire banking, credit, identity, photo, career, and business portfolio of each person. With regular security verification correspondence, this would ensure that all people are educated about the direct results of each financial decision and action.

However, currently very few people are aware of the intricacies of the scoring system, and furthermore how to manage their finances in general. This keeps the labor workers working and the business savvy, well... looking savvy.

Anything remotely equalizing society is considered communist, however I contend that the world needs one government; and then perhaps all the bad wont look so bad. The problem will always be that the Haves do not want to share with the Have-Nots, because then the good might not look as good either.



Posted by Troy Las Vegas (N/A), 10/17/2007 2:14:30 AM

Hey Troy

I wholeheartedly applaud your push for a rewards-based scoring system, replete with education for everyone. That's a good thing.

I don't agree with your push for one government... I'll explain why.

Government is the one entity that has no direct competition. Competition makes us better - it forces us to be efficient, driving costs downward and making us work smarter. But, because we can live anywhere in the world, there is a bit of competition of sorts. If you don't like the government of your country, you can move to another. This happens with states here in the US all the time - retirees move to Florida for the tax benefits enjoyed there. That helps keep state taxes in other states lower than they would otherwise be. Gays can move to a state more friendly to their desire to get married. This aspect of competition is a good thing.

A single government removes choice from us, the people. If there was only one government, taxes could be anything the government wanted them to be. Laws could be prudish or burdensome - and we can't get away from it because it's a single-government system.

Viva choice!



Posted by Brett Rogers (, 10/17/2007 9:34:20 AM

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