What Suze Orman doesn’t tell you about FICO
Whether you love or hate Suze Orman, if you’ve spent any time at all listening to her or reading her work you’d have to agree she’s all about FICO. FICO stands for Fair Isaac Corporation and it’s typically a stand-in for a ‘credit score’ calculated by Fair Isaac, a public company that makes money selling information. Information about you. Whether you want them to or not.
Orman talks almost constantly about the need to know, monitor, and improve your FICO score. She says this is because it determines whether businesses extend you credit and at what rate. It is also coming to be used by employers to help determine who they should hire.
What she doesn’t tell you is that there is no one FICO score. There are dozens of them, more even. Fair Isaac labels you based on what industry is asking. So you have a FICO for banks, one for insurers, another for telecoms, etc. And how do your actions (e.g. opening or closing a credit card or paying a month late) affect your FICO? Orman can’t tell you. Neither can I. Only Fair Isaac, which designs the algorithms that calculate your score, could tell you. And they’re not talking.
The other little item Orman neglects to mention is that your FICO score has nothing to do with the one variable that determines your ability to pay your bills - your income. FICO is a ‘measurement’ of your history of payment. It says nothing about your ability to repay debts.
So the next time you hear or read about FICO, keep those two things in mind.
April 26th, 2007 at 11:30 am
I just want to point out that Suze Ormon is a hands talker, and I think she’s a little nuts.
April 26th, 2007 at 1:42 pm
May 1st, 2007 at 4:59 am
I kinda have a crush on her.
May 2nd, 2007 at 5:30 pm
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May 2nd, 2007 at 8:24 pm
You stated: “…Orman neglects to mention is that your FICO score has nothing to do with the one variable that determines your ability to pay your bills - your income…”
That’s not true for all people. There are some folks who may not have the needed income but have the resources (money in the bank, stocks/bonds, real-estate, other assets) to pay the monthly payment for a given loan. So income all by itself cannot predict if a borrower can pay a loan or not, at least not for all borrowers. I do not work for any of the credit rating agencies and have not seen the algorithms used to calculate FICO, but I suspect past history is a statistically better predictor of future payments than income, which is why FICO and the others rely on it. Look at it the other way - if income WAS a better predictor than past payment history, then it’s in FICO’s and creditors’ interest to include that in the score!
June 7th, 2007 at 12:42 pm
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December 18th, 2007 at 1:12 am
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December 18th, 2007 at 2:16 am
I only like that it is really nice n interesting one thanx for sharing it
jasmine
tech-chek.blogspot.com
May 10th, 2008 at 12:31 am
orman is a sell out helping the big corps and banks keep us in slavery.
May 19th, 2008 at 8:41 pm