Home > banks, personal finance > FICO Score is not the best predictor

FICO Score is not the best predictor

Credit Score Is the Tyrant in Lending

…a person’s credit score has become the only thing that matters anymore to the banks and other institutions that underwrite mortgages

I bet it is not just mortgages but any credit product including loans, helocs and credit cards.

The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores, according to Dave Zitting, the chief executive of Primary Residential Mortgage, a leading mortgage lender

‘But what I find incredible is that we have imbued credit scores with these magical predictive powers — and yet the companies coming up with the scores can’t even get the borrower’s address and employer right. It would be funny if it didn’t matter so much.

fascinating stuff…

Any mortgage lenders in Canada care to comment on the story here? All Canadian banks use the same two credit rating agencies – Equifax & Transunion – apparently in addition to their own credit scoring systems.

via NYTimes

Advertisements
Tags: ,
  1. July 26, 2010 at 11:00 PM

    I think this is one of the ways to take a risk informed decision while lending money. There are other ways too. They are used in case by case basis.

    • July 27, 2010 at 8:57 AM

      why use it if it is a poor predictor? it should only be used as a guideline not as the deal maker (or breaker)

  2. September 7, 2010 at 4:22 AM

    The best predictor is The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores all
    All Canadian banks use the same two credit rating agencies – Equifax & Transunion – apparently in addition to their own credit scoring systems.

    **********

    thomascook

    Mortgage Services

    • September 7, 2010 at 12:41 PM

      thanks for the comment… amount of equity only applies to existing homeowners… what about new homeowners with little or no equity? banks require 2 recent paycheques as proof of income… hardly proves job satisfaction

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: