My Tough Love Campaign Against Credit Score Obsession (Part 2)

A Little History about the Credit Score

Welcome to Part 2 of my series on credit score obsession and addiction.  In Part 1 of this series, I told the story of my son being denied the right to open a savings account at an online bank because he had no credit history.  This experience reinforced my belief that the credit industry (with our unwitting cooperation) has unfairly elevated the status of credit scores in our economy.  This has led to pervasive abuse of credit scores by not just creditors but by financial service providers of all kinds, by landlords, and even by prospective employers.  Unfortunately, too many consumers have allowed this trend to push them into engaging in money behaviors and adopting bad money habits for the sole purpose of maximizing their credit score.

The most widely used credit score is commonly referred to as the FICO score.  The FICO score was developed in 1989 as a joint project between Equifax and Fair Isaac Corporation.  Fair Isaac provides financial services to some of the world’s largest banks and to other companies in more than 60 countries.  The FICO score was and is intended to quantify credit risk and nothing more.

I have been using credit – to obtain mortgage loans – since 1977.  I have no idea what my credit score is now or ever.  I had never even heard of a FICO score until the late 1990’s.  How is this possible?   What most credit score addicts don’t realize (or have forgotten) is that consumers had no direct access their FICO score until 2001, when federal law opened up credit scoring records.  According to a survey published by the Consumer Federation of America, as recently as 2003 only 2% of adults knew their credit score.  Now, any adult with a credit history can access his or her FICO score (for a fee) at  Many pundits believe that this opening up of the FICO score to public consumption has been a positive development.  I am not so sure.  I say this because access to FICO scoring has led to obsessive behavior by many consumers who modify their spending and credit usage to maximize their score.  More important indicators of financial well being – such as maintaining positive cash flow and increasing net worth- now take a back seat or are ignored altogether. 

Score Sharing and Corporate Greed Drive the Credit Score Obsession

What is worse, with the “opening up” of the credit score data, expansive “score sharing” has become standard practice.   An increasing number of businesses having nothing to do with offering credit (such as insurance companies, cell phone companies, and landlords) are now using the FICO score to evaluate customers.  Fair Isaac and its credit bureau partners are pushing this trend for the simple reason that it makes them a lot of money.  The widespread usage of the FICO score outside the direct credit industry is illogical because FICO scoring system awards points based on factors that were selected specifically to predict the likelihood of a person repaying debts on time, nothing more.   This is confirmed by the chart below, which illustrates the factors and relative weighting used in the FICO score.

What do any of these factors, for example, have to do with the driving ability and safe driving habits of a person applying for car insurance?  Nothing – yet insurance companies use credit scores to rate policies and set premiums. 

The Credit Score Obsession is Focused on a Moving Target

Many consumers obsessed with monitoring and manipulating their credit scores fail to realize that they are aiming for a moving target.  It starts with the realization that Fair Isaac does not maintain a database of FICO scores, as many consumers assume.   Instead, when a lender or other creditor asks for a credit rating for a credit applicant, the FICO score is generated by one of the credit bureaus from which the creditor has requested the report.  What Fair Isaac sends the the credit bureaus is software containing a scoring formulathat is derived from random samples of consumers’ credit information.  That formula (algorithm in computer parlance) is what is used by the credit bureaus to actually calculate the score.   This is one reason why each of the three national credit bureaus will often report different scores for the same credit applicant, even if Fair Isaac is the common source of the scoring formula.  Consumers cannot assume that they have a single FICO score that will be accurately and consistently reported by each of the credit bureaus.

As I continue this series, I will explore additional ways in which errors in data reporting and continued manipulation of the FICO scoring system by the credit industry leads to self-destructive financial behavior by credit-score obsessed consumers.  I will also talk about privacy problems in credit score usage.  Stay with me on this people – we must fight back together and stop the credit score insanity.

Return to Part 1 of this series.

Read the Fun and Logical Reasons to Monitor Net Worth Not Credit Score (Part 3 of this Series)

Read about Responsible Credit Score Strategies for Young Adults

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9 Responses to “My Tough Love Campaign Against Credit Score Obsession (Part 2)”
  1. A credit score is a number that reflects your credit risk level. Savings Account

  2. Matt says:

    Ironic that the major credit rating agencies for big business (Moody’s, S&P) have failed miserably, yet somehow find themselves fighting for validation along side the personal credit rating agencies as well.

    Proof, ask anyone who invested in AAA rated bonds in the last 5 years, or companies who held those bonds.

    As long as these guys have their claws into the political lobbying system, we’ll never get rid of them. It’s just old men fighting for a spot at the table with a dying business model.

  3. LAL says:

    I think it’s a better idea than not having it. Plus my DH arrived in this country with no score, it was very difficult to live without any credit score.

  4. LAL – Thanks for your comment. I agree that having a credit score is necessary to obtain CREDIT. I disagree with its use in other areas of life AND with consumers modifing their money behavior in a negative way for the purpose of maximizing that score.

  5. NtJS says:

    Excellent analysis – I totally agree. I lived without a credit score for years and never had any issue… never even came up until we did something stupid, like buy a new car. “Maam, you have excellent credit, sir you don’t have any.”

    We still got the loan at 0%, and we still think it was dumb.

  6. Don says:

    A movement should be started to amend FCRA, which specifically provides the opportunity for insurance underwriters to access and use these credit reports. As, you have so plainly stated these companies in no way extend credit to customers.

    If we don’t stop it (or reverse it) how far will this go? This may sound paranoid, but what if grocery stores, utilities, etc. adjust prices according to each consumers credit score?

  7. sandra says:

    I moved to the USA 5 years ago, my husband is a New Yorker. I feel that America is obsessed with credit scores. I had never had to divulge as much personal info in my life anywhere to buy services. No credit score, no phone, internet, tv, bank account, anything. I lived on my own for a couple of years before we got married and I couldn’t get a phone hooked up because I had no credit score. I had to get it done in my husband’s name, which really is dragging back fifty years ago. I’ve live in other wealthy successful countries and never seen such an obsession. That, social security numbers and id theft, I don’t claim to understand why, maybe it’s valid but I don’t know


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