#fico #creditreport #debt
Recently I was looking at my FICO score. We’ve all been taught since childhood that a good citizen pays their debts on time and is responsible with their credit.
This is the reason the following negatives in my recent FICO score came as a surprise to me:
Few accounts paid on time
You have few accounts that are in good standing.
Number of your accounts currently being paid as agreed
1 account
The FICO® Score considers the number of accounts showing on time payments. In your case this number is too low either because you have very few accounts or you’ve missed payments recently on some of your accounts or have accounts with derogatory indicators reported.
FICO High Achievers have an average of 6 accounts currently being paid as agreed.
No loan activity
You have no recent activity from a non-mortgage installment loan.
Your credit report shows no recent non-mortgage loans (such as auto or student loans) or sufficient recent information about your loans. Having a loan along with other types of credit demonstrates that a person is able to manage a variety of credit types.
I am actually being penalized for not having many accounts and debt. Of course, people are already saying, “well, you cannot be rated on something you do not have” and to them I answer, I may not have now, but I have had it and/or have paid it off so why doesn’t that count? Why must I have multiple active accounts and/or recurring debt?
The answer to that is simple, FICO is a credit-worthy score. Credit is the opposite of debt. Companies will provide me with credit in exchange for debt and interest. The more debt I have (to some extent), the more likely I’m to be a long-term interest payer. I get it. The problem is that FICO scores are being used more and more to make decisions where one of the attributes to the score may actually be a liability. Take renting as an example. As a landlord I don’t want tenants with any debt if I can help it. I want my tenants to make lots of money so that when rent is due I get my payment. However, most rental properties ask for your credit report and FICO score and a high scorer would also be in debt (a liability for me).
FICO scores, if they were used for their original purpose, I’d have not problem with. But just as social security numbers became our very crude form of unique identifiers through inaction by the government only bite us in our rear, so too will FICO scores if we do not limit their use to their intended purpose.
