Gov licenses credit bureaus and runs its own one. Banks must report to all licensed bureaus and may choose which bureau to pull reports from. This means a report from any bureau is as good as from any other one.
Having a gov player in the market effectively creates a price ceiling, so a private bureau has to sell data for less than the government-run bureau. Private bureau has to keep innovating to justify its existence and thus keep creating new products which predict creditworthiness better and better. Credit report includes all the raw information, so banks are free to compute their own score and are not bound to anything stupidly archaic and awkward such as US FICO score, don't need to rely on any external score at all. It is the XXI century, computing a credit decision out of a few hundred datapoints takes milliseconds, costs nothing. So gov-run bureau sees a fraction of a % of the load yet effectively moderates the whole market. The largest private bureau is owned by banks (like VISA used to be) and thus is working in the best interests of the banks.
Many (if not all) problems we see in the US financial sector are the result of regulatory and legislative negligence. Just some lazy folks trying to run things the way there were in the 80es.
There’s a ton of stuff we have and do, including some fundamental stuff (our system of voting, for one) that’s known to be really bad compared to the “state of the art”. But, in part because of some of those bad elements, we only ever get to apply better solutions for others, never ourselves.
Tech debt exists in constitutional law as well.
Like a CIA sponsored military coup? Or aerial bombing?
This isn't completely correct. For a period I had no FICO score, yet I was able to secure a loan from a Credit Union. It did require me to show my assets and income flow, but the Credit Union was able to provide me with a loan.
The score from what I have gathered when I learn really rewards those who remain in debt and pay substantial interest, not the frugal and financially stable (check to check is not financially stable). Basically encouraging to keep self in debt just at the edge of financial disaster's precipice.
> ... FICO prohibits not only validating different models against FICO scores, but even displaying FICO scores next to non-FICO scores. ...
> ... all three bureaus plus FICO have massive pricing power.
> ... come to a set of arrangements to jointly hike prices
This cartel will never be broken up. Too much money goes into the politicians pockets to move for break-up.
The credit union was content to use its own capital and hold your loan to maturity on its books. (I'm presuming you were probably a banking customer of the credit union, though I realize not necessarily.)
Non-credit union lenders though most often want to either sell your loan to investors or pledge it as collateral to borrow money for themselves, and for that they need a FICO.
> The score from what I have gathered when I learn really rewards those who remain in debt and pay substantial interest, not the frugal and financially stable (check to check is not financially stable). Basically encouraging to keep self in debt just at the edge of financial disaster's precipice.
That's not really true. Using a credit card for most of your expenses and paying it off in full every month is actually a great boost to your credit score. It's both an indication that you live within your means and you honor your agreements.
https://selling-guide.fanniemae.com/sel/b3-5.1-01/general-re...
>Credit scores are required for most loans purchased or securitized by Fannie Mae. The classic FICO credit score is produced from software developed by Fair Isaac Corporation and is available from the three major credit repositories. Fannie Mae requires the following versions of the classic FICO score for both DU and manually underwritten mortgage loans:
Equifax Beacon® 5.0;
Experian®/Fair Isaac Risk Model V2SM; and
TransUnion FICO® Risk Score, Classic 04.Way back when, getting my first credit card was difficult--although there are a lot more credit options today.
But, at some point, you absolutely do not need to be in debt to have a good credit score. I guess technically, if you use credit cards and pay them off every month without paying any interest, you're in debt all the time but that's not what most people mean by "debt."
So somebody with no debt is "unknown", rather than the expected "good".
In Finland we don't have credit scores, instead we allow looking up defaults. Which seems like a reasonably sane approach - known-bad borrowers find it hard to repeat that behaviour, and somebody with no history of taking loans/debts isn't penalized.
There is also the newly established The Positive credit register which contains list of all of your debts. Lenders must pull (started in April 2024) the information from there when they are making the decision to grant or deny the request. The report also contains your income for past 12 months (I assume those reported to Income Register). I'm not sure if there is regulation on if they actually need to use the data or not.
Which is why things like closing accounts or paying loans early actually hurt your score. CRAs and their advocates say “we lost a datapoint so our uncertainty increases”, acting as if that historical data has no value.
When I was applying for a mortgage and my credit was as “clean” as it has been (balances, accounts, etc.) Verizon filed a collection over what was a fraudulent account. Score dropped 140 points. In the course of three business days that collection was deleted, and my score went back up… 50 points.
Multiple factors, I know, but that also makes me think that even some of those deleted trade lines and delinquencies and others are still floating around and factoring in.
For most individuals, building a relationship with a local credit union is an asset in and of itself.
They said this about Bell Telephone at one time too.
Title insurance is a much bigger scam/cost. The various state & local taxes at closing are orders of magnitude higher. Not to mention brokers fees (which are somewhat being handled as of late).
The mortgage companies have to pay it even for applicants that don’t end up actually becoming customers.
I wouldn't cut out Title insurance, I have two friends for whom it saved low 7 digits each due to fraud in one case and liens in another.
It's incredibly important in today's market and I can't see how you can call it a scam, unless you also view car/health/life insurance as a scam as well, in which case we just disagree:)
1) The premium to risk cost is astronomical compared to other forms of insurance.
2) The owner's policy really only protects your equity (like if you put down 20%) but costs more or the same as the lender's policy (the other 80%)
Payout rates by insurance type:
title insurance - 1-2%
car insurance - 70-80% (lately close to 100%)
life insurance - 96-98%
homeowners - 60-70%
The way it's implemented in the US, it absolutely is.
Given the horror stories that crop up regularly on HN or Reddit, these insurances actually make sense.
Titles have a lot of opportunities for complications in many places; there's no simple technology fix.
The insurance is annoying but it's an area that has the potential for really expensive issues.
There was another recent article here on cartels that suck small amounts of blood from lots of people. Too small for anyone to individually care but collectively a lot!
What’s particularly insulting is that credit scores are commoditized - they are free to go check. Technically it’s vantage score vs FICO but generally the same and definitely not worth $150.
No other figures are consequential. Mortgages are a predatory thing pointed at the financially illiterate and the hopeless right now.
Paying $400,000 for a mortgage vs paying $80,000 and 6% over 30 years, but investing the remaining $320,000 in the stock market (returning ~7% after inflation) and your housing payment grows much slower than inflation.
That doesn't mean every mortgage is a good idea, or there aren't circumstances where the borrower ends up losing out, but it's a tool that can be utilized if you learn to understand it.
These dueling agencies may eventually find a balance, with the FHFA dictating which companies services have to be used and the CFPB dictating how much those services can charge...
The whole thing is a failure not of free markets but of different government regulators not coordinating their regulations.
* You cannot regulate a monopoly into good behavior. Recent example: Apple.
* You must destroy it.
All of these regulatory bureaus are a waste of time. Let the FTC loose like a Mantura.
The wind instrument?
> It’s not that hard to come up with a model for underwriting that is reasonably accurate; any bank with scale could probably do it. But FICO uses trade secrets, copyright, patents, or restrictive contracts to block anyone from doing so.
> First, the government guarantees most mortgages through Fannie Mae and Freddie Mac [...]. This complex process relies on a standard to price the loans, and that standard is FICO,
> A few years ago, the Federal Housing Finance Agency (FHFA), which runs most housing finance for the government through its control of secondary mortgage buyers Fannie Mae and Freddie Mac, decided that it might want to create some competition for FICO. So it turned to VantageScore. Only, it got backlash from Wall Street, which didn’t want to bother changing their models for mortgage backed securities. Instead of allowing mortgage lenders to pick either FICO or VantageScore, FHFA simply required that lenders use both.
In short, the federal government essentially requires everybody to use the services of one specific private company. This company can raise prices not because it's anticompetitive, but because the government doesn't allow it to have any competition.
Perhaps, instead of trying to pass even more regulation, that government should just relax its restrictions and allow other participants on the market to compete fairly?
The real answer is an open source credit model. We don't need a black box. Let private industry handle the credit line qctivity reporting part like they do now and just feed that info into an open source model. Done.
¿Por que no los dos? A cartel enshrining itself into law is Regulatory Capture 101.
The problem is that your competition is engaged in anti-competitive practices. Any bank can make an underwriting model, and the large banks already have enough data to pull it off. They haven’t done it, and they won’t do it because the agreements they’ve made with FICO makes implementing that impossible and Government agencies require FICO.
If a startup wants to change this, they better get real good at lobbying because government policy is the biggest constraint.
From TFA:
>Even if a lender thinks the customer would be a good risk, the lender has to buy a FICO score regardless. Mortgage bankers don’t carry the capital to hold the mortgages they make. Instead they make a loan, and then send it onward to the capital markets. First, the government guarantees most mortgages through Fannie Mae and Freddie Mac as well as other programs for veterans and first time homebuyers. Then, the government in turn sends these guaranteed mortgages to Wall Street. This complex process relies on a standard to price the loans, and that standard is FICO, combined with the credit information from the three bureaus.
Doesn't matter how accurate or inaccurate it is, if you're selling to Fannie Mae or Freddie Mac (which is the majority of mortgages) you HAVE to use FICO.
As described in the story the fucking CREDIT BUREAUS themselves were unable to launch a competing scoring model due to monopoly lock in effects.
"In 2006, the three credit bureaus decided they were tired of FICO’s position in the industry, and created a rival, called VantageScore, offering credit ratings for much cheaper than FICO"
...
"A few years ago, the Federal Housing Finance Agency (FHFA), which runs most housing finance for the government through its control of secondary mortgage buyers Fannie Mae and Freddie Mac, decided that it might want to create some competition for FICO. So it turned to VantageScore ... Instead of allowing mortgage lenders to pick either FICO or VantageScore, FHFA simply required that lenders use both. So now, instead of having to deal with one monopoly, mortgage lenders will have to deal with two"
This is not a market problem, or a technical problem. The problem here is the US federal government.
Same reason IQ tests are banned and credit scores are only allowed to consider like 7 factors.
This is about regulatory capture, which is of course entirely within the control of the regulators, and very indirectly by voters at the ballot box. We continue to vote for politician who allow this to continue.
We can't be taken advantage of without our (collective) permission. Let's vote for some folks that remove the regulatory capture and free up lenders (really loan originators, of which there are a great many) to compete for borrowers by (in some cases) dispensing with the credit score and other items.
: Wait, it's all social credit?
: Always has been.
The most valuable thing to lenders is someone who can 100% be counted on to always pay, even if things outside their control turn against them. People chronically fail to understand this, and end up putting themselves in financially precarious situations i.e. paycheck-to-paycheck living.
You can’t get a perfect score if you change credit cards on a regular basis or cancel a zero balance card, people have worse credit because they paid off their student loans years ago or bought an older/cheaper car with cash as opposed financing one (less credit “diversity”) all of these things penalize people who have always paid their bills
The credit score is essentially price discrimination predicated on customers not being able to find and follow instructions. It also happens to give poor scores to people who are credit risks, but the difference between a meh score and a high one is mostly your ability to munchkin a bit.
[Edit: just checked, mine is 808.]
It will also offer the lay person insights into how the credit rating is exactly determined. They can know what is causing their rating to be less than desired and take appropriate action, instead of watching a random youtube video titled "5 ways to quickly improve your credit score".
Presumably the reason they have a lower score than desired is because they already failed to do this in one form or another.
> "5 ways to quickly improve your credit score".
Have no inquiries. Have no forced account closures or writeoffs. Have as much total open credit as you can without triggering the first two. Have at least one secured or unsecured installment loan open and then paid off every 5 years. Always pay your bills on time.
It's not quick, I suppose, but the recipe is already pretty well known.
So the only real way to grow and keep the score high is:
* Pay your credit card and loan statements when they are due (late payments imply you don't have money).
* Keep credit inquiries to the minimum necessary (an inquiry means you're asking for a loan, implying you don't have money).
* Don't max out your credit limits if possible (you're taking and maxing out lines of credit, implying you don't have money).
* Keep old credit cards open even if you don't use them, if it's practical (a longstanding open line of credit implies you have money).
* Keep doing all of the above for many years (a good credit score implies you have money and will pay back debts incurred).
There's no magic or mystery to it, it just takes a lot of time to grow and keep high because you're building and maintaining trust with banks. You know that old saying? Trust is built over years but destroyed in a second? Yeah.
For example, I know my score swings by +/-30 points/month. I'm fairly confident that is due to the balance on my CCs varying when the score is calculated (there is nothing else about my financial situation changing - same house for a decade, same car loan for 5 years, no new credit lines/loans, etc). But, I pay the cards off every month, and the score always rebounds.
Yes. It feels wrong that the current balance of credit cards is considered debt. It should only be considered debt once (if) you start paying interest on it. So if you pay it off fully every month, it shouldn't be seen as debt.
But whatever, they consider it debt so it can make the credit score swing up and down a lot. I see this every late summer when I pay my childs school bill for the upcoming year on a credit card. It is a very large amount so suddenly my credit utilization goes up and my credit score drops around ~70 points. Then a month later I pay it off and the credit score goes back up the same ~70 points.
https://www.myfico.com/credit-education/whats-in-your-credit...
Is there a formula, spreadsheet, or code that people could use to verify their score? Or is it indeed a mystery?