Does The FICO Score Matter?

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This question can only be answered individually, not corporately; so it’s not a question of whether the FICO score matters, but whether it matters to you.

I start with the premise that the function of leadership is to produce more leaders, not more followers.” – Ralph Nader

I wrote this post to help you realize you have a choice, so you can help others realize they have a choice.

The reality of responsible choice

It is often said that music and art reflect the society within which they are created.  Much the same, financial systems, regardless of right or wrong, also reflect the culture in which they operate.

Much like we choose which artists and musicians to follow, we can also choose which financial systems to adhere to and which to disregard.

Yes, the FICO score is here to stay, but that doesn’t mean we have to follow it.  The decision is ours to make.

Are the foundations and measurements of the FICO score worthy of our allegiance?  I suppose that depends on whether or not it accounts for our chosen lifestyle.

Before taking your stance be sure to give the foundational components of the score careful consideration. If you determine the FICO score accounts for the financial lifestyle you wish to live, then follow its guidelines with confidence.  If your findings are contrariwise, then exercise your choice to abandon its guidelines.

Study the score, make your choice, and be ready to accept the benefits and challenges that accompany your choice.

Examining the FICO score

The FICO score itself is not inherently evil, it’s simply a system for gaging the creditworthiness of the indebted.  It’s amoral.

FICO is praised by some for it’s ability to separate the wheat from the chaff.  It is discredited by others because it fails to account for the debt averse.  It is even hated by some and viewed as an evil system of banker control and world domination.  Well… let’s take a look at what it really is.

What is a credit score?

A credit score is a numerical expression based on a statistical analysis of a person’s credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information, typically sourced from credit bureaus.  Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, employers, landlords, and government departments employ the same techniques. Credit scoring also has a lot of overlap with data mining, which uses many similar techniques. [1]

Who is FICO?

FICO is a publicly-traded corporation (under the ticker symbol FICO) that created the best-known and most widely used credit score model in the United States. [1]

How does FICO determine the score?

Although the exact formulas for calculating credit scores are secret, FICO has disclosed the following components:

  • 35% = Payment history – Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a FICO score to drop. Paying bills on time will improve your FICO score.
  • 30% = Credit utilization – The ratio of current revolving debt (such as credit card balances) to the total available revolving credit or credit limit. You can improve your FICO score by paying off debt and lowering the credit utilization ratio.  Alternatively, applying for and receiving the credit limit increase will also drive down the utilization ratio. Closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on their FICO score.
  • 15% = Length of credit history – As your credit history ages it can have a positive impact on their FICO score.
  • 10% = Types of credit used (installment, revolving, consumer finance, mortgage) – You can benefit by having a history of managing different types of credit.
  • 10% = Recent search for credit – Credit inquiries, which occur when you are seeking new credit, can hurt your score. Individuals shopping for a mortgage or auto loan over a short period will likely not experience a decrease in their scores as a result of these types of inquiries, however.  While all credit inquiries are recorded and displayed on your credit report for a period of time, credit inquiries that were made yourself (to check your credit), by your employer (for employee verification) or by companies initiating prescreened offers of credit or insurance do not have any impact on your credit score.

There are other special factors which can weigh on the FICO score.

  • Any money owed because of a court judgment, tax lien, etc. carry an additional negative penalty, especially when recent.
  • Having one or more consumer finance credit accounts may also be a negative. [2]

FICO score = responsible use of debt

My personal stance on the FICO score

I am debt averse, so I do not need the FICO score.  The score fails me because its calculations do not account for my financial modus operandi of complete debt avoidance.  I disregard it as an influence in my life because it fails me.

I understand the ramifications of my choice and accept all challenges it will bring.  The challenges will come, and I look forward to them.  Standing firm in my educated decision will help me seek out companies that do account for my financial lifestyle.  It will help me find companies that do not operate solely on a system that fails me.  Be sure you understand the challenges before making your decision.

Those who determine the FICO score does matter must live within the rules of the score.  That is their challenge.  Just as I should not be faulted for my choice, they should not be faulted for theirs.

Always think for yourself

I never plan to borrow money again.  If an insurance company penalizes me because I am debt averse, I will get a different insurance company.  Rather than doing business with companies who handcuff me, I will seek those who gladly work with people such as myself.  I know they’re out there.

What will you do?

Never be afraid to think *and live* outside the box, and never feel like you need to apologize when you do.

If you want to know your FICO score

Visit Credit Sesame (affiliate).  If you don’t care, then don’t look – I don’t.

Credit Sesame

[1] Wikipedia – Credit score.
[2] Wikipedia – FICO score.



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