Sunday, December 28, 2008

Who is Fair Issac? And why are they given free reign to destroy lives?

Everyone blames their own culprit for the current credit crisis. Banks blame “risky borrowers.” Borrowers blame “greedy lenders.” News pundants offer their "expert analysis." Guess-accusations disguised as fact gets bandied about on the early morning news show coffee klatches.

Let’s face it. Banks are out of control. But few are looking at the unregulated source that determines who is credit worthy and who is not.

That distinction belongs to Fair Issac, the shadowy giant responsible for divvying out FICO credit scores.

Personally I think there is something sinister about FICO scores and the company that issues them. Here’s why.

To be honest, one reason is I’m baffled why a friend who declared bankruptcy has a better FICO score than mine. Rather than declare bankruptcy, I decided to pay off my creditors instead. Isn’t that what banks want, people who pay their debts? Apparently not, according to our scores.

I noticed the discrepancy right away. Although we opened accounts at the same bank with the same opening deposit amount, she was given overdraft protection and a host of other perks and I “didn’t qualify.” That was ten years ago.

Today, I make triple her income. I’ve never defaulted on a loan; never declared bankruptcy. I’ve never had my telephone service, cable, gas or electric disconnected. I’ve bought at least five cars over my lifetime, had numerous personal bank loans, and paid thousands over time for electronics equipment, furniture, two houses and more -- all paid as agreed. Yet she regularly gets offers for credit card offers in excess of 20-, 30- or more thousand dollars. If I get one offering me a mere thousand, I’m lucky. Why?

Only Fair Issac knows for sure. Even when I pay my credit balances down to zero, they find reasons to keep my score low.

To FICO I’m a credit risk. To make things worse, the three major credit bureaus can also find unfathomable reasons not to fix erroneous credit reports, even though the experts say that’s illegal.

Banks too, seem to have a vested interest in not fixing errors, all the while blaming “risky” borrowers for problems clearly of the banks’ own doing.

I’d like to be at the head of the line of consumers championing a thorough investigation of the banking industry, especially, Fair Issac, the FICO folks. Fact is, many borrowers who thought they’d be able to refinance their mortgages when their “risky” credit scores got better found themselves stuck when those scores didn’t rise as they expected. Their once single digit mortgage interest rates more than doubled. Suddenly a once fairly reasonable 5 or 6 percent interest loan ballooned to 10, 15 and even 28 percent. Payments soared and the ability to pay them fell out of reach for many. Fast forward to mortgage industry melt-down.

My "risky credit" experience goes like this. Several years ago Citibank unceremoniously charged off my Visa account, even though I was paying on it monthly, in amounts above and beyond what was agreed. How can that be?

Through a series of unforeseen circumstances -- namely I was laid off -- I fell behind in my Visa payments. As advised by the so-experts, I called Citibank and notified them of the situation. I made payment arrangements to get caught up again--thinking it was the responsible thing to do.

Citibank promised they would ‘recycle’ my account current if I agreed to pay $48 dollars a month for four consecutive months. I agreed, and in addition to paying the amount promised, I paid them an extra $60 each month since I found a new job. In the final month of our “agreement” I made a lump sum payment of over a thousand dollars -- paying half of the entire outstanding balance. I also sent them a letter notifying them I’d pay the remainder of the balance in full the next month.

My reward for all of this due diligence? My account was charged off and sent to a collection agency for non-payment. Huh?

The only reason I can figure is, for some reason, my checks always seemed to arrive at Citibank a couple days after the due date, no matter when I mailed them.

I refused to negotiate with the collection agency – okay maybe that was my fault, I agree. Instead I kept my promise and mailed the full payoff amount directly to Citibank. They never cashed the money order.

I discovered that more than a year later, when the charge off was still showing up on my credit bureau report. Luckily I still had the receipt of my payment. I went back to the place I purchased the money order, verified it had never been cashed, then resent the money directly to Citibank and moved forward.

That same year for some reason unknown to me, the IRS decided to put a lien on my house for unpaid taxes…taxes that were already paid both by me and my employer. Rather than pay the disputed amount immediately, I sent proof that the taxes had already been paid by my employer. By the time I got that error straightened out with the IRS, several months had gone by. After realizing the mistake, the IRS subsequently removed the lien. The credit bureau didn’t.

Now back to FICO. To FICO, it doesn’t matter that Citibank decided not to cash my money order or that they charged off my account even though I was paying them exactly what I was asked.

Both the charge off and the lien, of course, showed up on my credit report. On review, I also discovered something on my report I knew nothing about…a charged-off amount of $30 for a cable account I never had. I suddenly realized that a tenant had subscribed to cable service in my name.

Interestingly enough, that tenant subsequently paid the amount in full a few weeks after they had fallen behind. Yet, the time during which they fell behind was showing up on my credit report.

I contacted the company immediately with proof I had never opened the account, never used their service and didn’t owe them a dime. When the company refused to correct the item I also contacted the Better Business Bureau.

I notified all three credit bureaus - Equifax, Experian and Trans-union – about each of the situations above -- repeatedly. I sent proof of the release of the lien, with a copy of the letters from the IRS. I sent statement copies, letters, money order copies and more detailing my dispute with Citibank. I showed proof that I never signed up for cable, and was out of the country when the order was placed.

To date, the fictitious cable account still appears on my credit report. So does the lien, even though I have repeatedly sent copies of the letter from the IRS removing it. So does Citibank, although it shows up as a “paid” charge off.

Every time I contact the credit bureaus to correct the information, I get the runaround. Experian even sent me a letter claiming that although the erroneous cable charge would remain on my report, because of my “request,” they would put a fraud alert on my credit file. Never-mind that I never asked for a fraud alert to be placed on my file or that the cable account in question was closed years ago.

That brings me to today. Recently I discovered a store-card account was 60 days past due. I’ve had the account since I was in college. I turn 51 this week. For some reason the company says I opened the account in 1996, even though I have statements dating back to the 80s (and copies of payment checks dating back into the 70s).

In all the years I’ve had the account it has always had a grace period. Suddenly, as of June, it doesn’t. And now since I consistently paid my bill a few days after the due date, on the 19th instead of the 14th -- like I’ve been doing for more than 20 years -- it’s now seriously delinquent. Huh?

Okay, so I didn’t read the change in terms I got in the mail. If you can read those things and understand them, you’re a better person than me – and I worked in the credit card industry for almost a decade.

I paid the past due amounts, and may now close the account. Meanwhile, my "always pay-on-time-because-of-overdraft-protection" friend who simply declared bankruptcy when she got behind on her debt has a perfect FICO score, while mine hovers somewhere around 400.

What goes into a FICO score? If this number is used to determine every financial aspect of our lives, we should know more about what drives it and what doesn’t.

Isn’t it all completely subjective guesswork, versus being based on scientific evidence? How do we know profiling isn’t part of the equation? Because Fair Issac says so? The potential for abuse here is beyond measure -- just ask those guys in the “free-credit-score-dot-com” commercials.

Come to think of it, why do I have to pay to view something that controls my very livelihood? Why should I pay an annual fee to view something that can determine if I work or not and in some cases, where I can live? Why is it that someone who completely writes off his or her debt can be viewed as more responsible than those of us to work to pay our debts off, albeit slowly and maybe not perfectly? And if a creditor makes a mistake, why do I have to pay for it with a poor credit score?

To me, it seems FICO scores determine who has ready access to excess cash, rather than who is or is not "risky." People who have overdraft protection that covers their checks, regardless of whether or not they actually have the available funds, can always pay on time. They don't have to give a thought to whether or not those funds are currently in their checking accounts when they pay a bill. Additionally people with extraordinarily high credit lines can afford to charge hefty fines, like taxes, and pay them on time, even if if they are incorrect. They can pay them up front, while waiting for disputes to be resolved and the charges reimbursed.

So, risk isn't about who pays or who doesn't. It's about who has ready access to money, and who doesn't. Apparently it's better not to pay your bills at all than to be a few days late doing it.

On television recently I saw a bank commercial that offered a simple solution to fix the current credit crisis: don’t lend to risky borrowers. I have a better fix: let’s do some prying into what makes Fair Issac tick, and why some borrowers are deemed “risky” and others not.

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