Comments on: Keeping Score of How the Credit Industry Works http://washingtonindependent.com/2521/keeping-score-of-how-the-credit-industry-works National News in Context Sun, 04 Mar 2012 13:30:47 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: paulw http://washingtonindependent.com/2521/keeping-score-of-how-the-credit-industry-works/comment-page-1#comment-2255 paulw Wed, 30 Nov -0001 00:00:00 +0000 http://www.washingtonindependent.com.php5-9.websitetestlink.com/?p=2521#comment-2255 Since the whole FICO score algorithm is ultimately proprietary, it's never been clear just what the score means. Does it mean "how likely is this person to pay back a loan?" or does it mean "how profitable might a loan made to this person be?" If it's the latter, then it should be obvious why a few late payments would raise the score: fees and penalties for late payments reportedly account for roughly half the individual-credit industry's annual profits, and a person who makes late payments will yield a more profitable loan at a lower interest rate than a person who doesn't. (Remember the term for people who pay all their bills on time: "deadbeats".) Since the whole FICO score algorithm is ultimately proprietary, it’s never been clear just what the score means. Does it mean "how likely is this person to pay back a loan?" or does it mean "how profitable might a loan made to this person be?"

If it’s the latter, then it should be obvious why a few late payments would raise the score: fees and penalties for late payments reportedly account for roughly half the individual-credit industry’s annual profits, and a person who makes late payments will yield a more profitable loan at a lower interest rate than a person who doesn’t. (Remember the term for people who pay all their bills on time: "deadbeats".)

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