Ask A New Jersey Closing Expert

Fair Isaac Corp.’s credit score— developed by engineer Bill Fair and mathematician Earl Isaac to help banks and department stores calculate their customers’ creditworthiness—has come to loom over consumer finance. “FICO is the wizard behind the curtain of the economy,” says Matt Fellowes, a scholar at the Brookings Institution, a Washington think tank.But with mortgage defaults surging and credit-card issuers bracing for more problems, the wizard seems to have lost some of its magic.In the past few years a group of “credit doctors” and mortgage brokers began devising tricks, some illegal, to help borrowers juice their FICO scores to qualify for credit cards and mortgages on homes they couldn’t afford. At the same time new, exotic mortgages were bursting onto the scene and Fair Isaac was slow to keep up with the changes. By the end of the housing boom in 2006, FICO’s accuracy in predicting the likelihood of a borrower’s repaying a debt had slipped.

This has caused Fair Isaac has announced a sweeping overhaul of the FICO score, its most dramatic ever. The firm promises FICO 08 will be a better predictor of consumer behavior. Who is really to blame the greed of Wall Street, Banks or Fair Issac, all  it provides the proability of someone being a good borrower (like I said in the statement it is only a proability); it is the responsbility of lenders to complete the due diligence checks in my opinion.

 Your friend

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Resources:

Credit Scores: Not-So-Magic Numbers - by Dean Foust and Aaron Pressman

This entry was posted on Friday, February 15th, 2008 at 3:15 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.