The “Fair Isaac” Score, better known as “FICO” score, are the numbers used to decide whether you get approved for different types of credit, determine the interest you pay n debts, and in some cases can determine whether you get or even keep a job (especially government jobs).

At first glance, the system seems fair enough. It doesn’t take into account gender, race, education, age, or even criminal record. It also counts things that have happened lately more strongly then those that happened a longer time ago. Also, unlike the (permanent) criminal record system, most things are “forgotten” by FICO after 7 years. All this of course is good as long as you don’t mind your whole identity being reduced to 3 three- digit numbers of course.

But dig a little deeper and one finds that the FICO scoring method has major flaws. First, what’s not included in the score. For instance your rent, phone bills, energy bills, and many other bills you pay each month don’t help your credit at all! In fact, they only count towards your credit if you don’t pay them by way of a collection reporting on your credit report. So, for most things we (don’t) pay every month we can say that the FICO accentuates the negative and ignores the positive of our bill paying.

This is no coincidence. Only those creditors who pay to report your information to the credit bureaus every month are helping you when you pay them on time. So very often the credit report becomes like a criminal record, a way of punishing you for bad behavior but with few rewards for good behavior. Moreover, credit bureaus report every piece of information sent to them by it’s paying clients, without checking the information’s accuracy. Is it any wonder that over 70% of credit reports have major errors on them?

Even for things that are accurate and do report each month there is problems. First, because recent information is counted more heavily, short term problems have long term consequences. A 30-day late on your mortgage, even if you have had years of on-time payments, will cause a dramatic reduction in your credit score. This often has the effect of “kicking people” while they are down as financial troubles often cause late payments, causing lower credit scores, which prevent the consumers from accessing equity in their home, which forces them into bankruptcy and/or foreclosure.

Next, collections are a major issue. Collections count against your credit score the same regardless of the amount and, more importantly, regardless of if they are paid or not! This means that being diligent and paying old debts does not help one’s credit score. Instead, it can actually hurt your credit score by updating the date of last activity to the date of payment, making the collection sit for 7 more long years on your report.

Lastly, the FICO score seems to be created to make credit card companies profit. If you do not have any “revolving” tradelines (credit cards) it is almost impossible to build a great credit score. Therefore, paying with cash all the time actually hurts you
Next, if you do have credit cards and don’t use them often then FICO “punishes” you for them being inactive. Furthermore, if you close the credit card accounts (or if the company closes them) you can expect a rapid drop in your FICO score. Lastly, if you use your credit cards too much (over 30%) then you can also expect a rapid drop in your FICO score. So FICO likes to see you in debt as much as you can afford, not “debt free” as so many books proclaim as goals.

As you can see, FICO scoring does have many good aspects to it. Sadly, it has a long way to go before it deserves the “fair” name that it goes by.