FICO Isn't a Pet Puppy

Some smart folks have long said: "Neither a borrower nor a lender be".

I don't always pay attention to stuff like that, but you can bet, if I'm to be one or the other, I'd much rather be the lender in that equation.

Because the lender gets to decide whether or not to do the deal.

The borrower really hasn't much of a say so.

And one of the things the lender can use to decide whether or not to loan is the ubiquitous FICO score, or credit score.

Now as a lender, one of the first things I care about is whether or not the borrower can pay me back.

Otherwise, it's a gift, not a loan.

And one would presume the FICO score or credit score of the borrower would help me make that decision.

After all, that's what banks and credit card companies and mortgage brokers and stuff use, and they're the pros, after all.

Except the FICO score, so all important in our credit driven economy, doesn't tell you a damned thing about whether or not the borrower can repay you.

Your FICO score is composed of five factors:  Payment History (35%), Amounts Owed (30%), Length of Credit History (15%), New Credit (10%), and Types of Credit Used (10%).

See anything in there about how much you earn?

Or how much equity you have on your balance sheet?

Or what kinds of assets you could pledge for collateral?

Or Debt to Equity ratios?

Or Debt to Earnings ratios?

Or liens, judgments, or assignments of earnings?

Nope, not a word.

Not one percentage point.

Zilch, nada, nothing.

The only components are how much credit you're using and likely to use on an ongoing basis.

How good a customer you will be of the banks, credit unions, mortgage companies, payday loan shops and credit card companies, which represents how much money they will ultimately make off of you.

Now logic would say that the less you owe, given constant earnings, the more credit worthy you are likely to be.

But that's not the case.

Recently, a number of people with credit cards and who pay off their balances each month, have gotten notice that their available credit card limits have been reduced.

Sometimes by more than half.

Because it seems that FICO drops when you start having small or no balances owing.

Now understand, I'm no fan of debt, and carry what is essentially a "zero" FICO score: they simply say they do not have enough history on me to provide a score.

Because I pay cash, and have since about 1990.

But our country's economy depends on the revered FICO score to sustain business and credit on a day to day basis.

And that dependency has totally transformed the collective psyches of our country regarding our finances.

That transformation has now established debt as the norm, and the ability to repay it as a mere inconvenient detail.

People now worry more about their actual FICO score than their total debt obligation or their ability to repay it.

Or refinance it.

Or renegotiate it.

Don't believe it?

Look at the number of TV ads for debt consolidators, debt reduction companies, bankruptcy attorneys, and credit score improvment companies.

"So what" you say?

Well, that attitude has now gotten to those who are running the country.

Our national debt keeps growing exponentially, and the O-man himself seems to be the proverbial drunken sailor when it comes to spending.

A billion here, ten billion there, fifty billion over there.... just keep using the credit so we can keep borrowing.

Spend ourselves out of debt!

And now Hillary SWWBP  (She who would be President) says our debt and deficit is approaching a national security issue.

"I served on the budget committee in the Senate, and I remember as vividly as if it were yesterday when we had a hearing in which Alan Greenspan came and justified increasing spending and cutting taxes, saying that we didn't really need to pay down the debt -- outrageous in my view," she said.

Clinton said that the US debt has hurt "our ability to protect our security, to manage difficult problems and to show the leadership that we deserve.”

"I do not like to be in a position where the United States is a debtor nation to the extent that we are,” she said last week.

I'm far from a Hillary fan, but by comparison to the O-man, she's looking positively right wing.

A number of years ago, a very wise man told me that "A debt-free company can't go bankrupt."

Were he around today, he might be counseling America to aspire to a "zero" FICO score.

Because FICO isn't a pet puppy.... it's the elephant in the living room.

“Debt is the slavery of the free.” ---- Publilius Syrus

“Debt is the fatal disease of republics, the first thing and the mightiest to undermine governments and corrupt the people.” ---- Wendell Phillips

“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” ---- Ogden Nash