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FICO Scores Now Getting Unreliable?

By Brian Anderson
Published: Thursday, August 12th, 2010

13FICO score system is the most widely used system in the United States for measuring credit scores. The system has helped many credit card holders to obtain more loans but was accused of being unreliable.

FICO or Fair Isaac Corporation created the first credit scoring system also called FICO score system in 1958. And the company became an important item in the milestones of banking and credit history.

In 2008, the mortgage meltdown was blamed on the FICO score’s unreliability to predict default risk. The FICO scores, which were primarily used by most lenders for assessing risk, were said unfair and unreliable. Many companies and citizens blame the corporation for having a faulty scoring system. They claim that the credit scores could not predict subprime default risk accurately.

FICO’s defense was quoted by FICO’s CEO, Mark N. Greene. “We don’t think FICO scores have caused or contributed to the subprime mortgage problem.”

“People are looking for fingers to point and the FICO score comes in for critique,” he said. “But we are quite confident that it has performed as well and is not an appropriate source of blame.”

In June 2009, FICO scores were again held at its neck.

Bloomberg reported an article about a paralegal in Portland, Oregon named Sharii Rey. Her $42,500 credit line was reduced to $12,000 by JPMorgan Chast & Co. This reduced her utilization rate, thus lowering her 760 credit score. Rey is afraid that the lower new score would danger her future borrowing ability. Congressman Luis Gutierrez of Illinois that the FICO formula has errors as it caused many people to be granted with decreased loans.

“Reductions in a consumer’s credit based on the lending groups’ overall propensity for risks has no bearing in all the risk of default of all the consumers,” Gutierrez added.

Another statement was made by Evan Hendricks, publisher of the Privacy Time from Washington. “Is FICO an accurate predictor of risk? It’s the worst system around, except for all the rest.”

The FICO is still the existing dominant system in the country. At this point, this year hasn’t yet been a hard time for FICO. Though many of its patrons who relied on the scores FICO has provided, have doubts and have transferred to using another score system, the VantageScore. The meltdown and the damaged scores were still being blamed on the score system. Many FICO supporters indicate that there could be other reasons and factors that made a lot of people lose their homes. Lenders and cardholders can also be blamed. Though many are still wondering on the future of the scores, FICO is still standing on its own defense and believes that their system is accurate and should not be blamed.

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