Is Your Credit Score Valid?

How ridiculous it is that your credit score does NOT take into account your income in determining your credit worthiness.

Even from an accounting standpoint, how can a balance sheet be considered of any value if it does not contain information on the assets of an organization. In my opinion, as a credit and collection professional, that scenario invalidates the entire credit scoring system.

I have been aware of this for some time but it never ceases to amaze me. I have seen many strange and unrealistic discrepancies in this scoring process and have often thought to myself, “This MUST be someone in the witness protection program.” How is it possible that a person with only one credit line, a high credit of about $1000, zero inquiries, no real estate loan and a PO Box as a home address have an 800+ score? While another with a lifetime of paying their bill on time, no public record filings and one derogatory line of +30 days have a mid-400 score. I have seen it regularly and it doesn’t make any sense.

As many lenders use computer generated formulas to determine credit worthiness of potential customers, without a human being ever laying eyes on a credit application, I feel that the use of scoring, such as FICO, should be made illegal or severely restricted. We don’t allow profiling for criminal process so why do we allow credit scoring, that doesn’t include info on income or asset, to make decisions for us? For example, an acquaintance asked for my opinion of his credit report. I reviewed same and noted that there were two real estate mortgages listed in addition to several unsecured credit cards and an auto loan. I assumed that he was mortgaged to the “hilt” with a first and second and probably was in over his head with the credit card debt.

Not true. He actually owns two houses and a vacant piece of land. Beside a good income on his own, he collects rent from the second home, which more than covers the mortgage and provides additional positive cash flow. The vacant building lot is totally unencumbered and could become a valuable source of cash if sold, mortgaged or developed into another rental home. None of this is evident on the credit bureau report. It appears he has two large mortgages, several credit cards and an auto loan.

The minimum payments alone would be more than an average wage earner could handle. He has never missed a payment or been late or past due but he has only a small percentage of his credit lines available which is a further negative. He simply doesn’t need any additional credit cards and uses the two or three that he has but carries a balance. His score is in no way reflective of his actual financial situation.

Much like crying "fire" in a crowded movie theatercan cause panic and injury, so too using an inaccurate, invalid scoring system, that only see a lop-sided view of a person’s history, to determine someone's credit worthiness can cause long term financial injury to many people. It can also cause lost sales to business which rely on credit scoring systems to generate qualified buyers.

I don't want to sound like an episode of "The X Files," but if no one questions this process it leaves room for nefarious, behind the scenes, individuals in business and/or government to abuse. These secretive, proprietary scoring systems could be used to artificially manipulate the lives of many people for any reasons.

How can a scoring system, which does not account for someone’s income or assets be a valid method of determining their ability to repay debt. I am sure that someone who makes $150,000 a year would find it much easier to pay a $5000 credit card debt that a person who makes $20,000 per year. It is only the most common sense that income be a decisive factor in determining credit worthiness.

What amazes me even more is that the Fair Isaacs Company has been able to brain-wash nearly everyone in the credit industry into believing that an individual's income is not a determining factor in their ability to repay debt.

I guess it's like PT Barnumsaid,"There’s a fool born every minute…"

Patrick Ingegno can be reached at inner-circle@optimum.net or www.innercircledebtsolutions.com