Two and Two: Credit scores fall, AP, Part II

August 27, 2010 | By Greg Fisher, creditscoring.com

See Part I

Following questions from creditscoring.com regarding an Associated Press analysis of FICO credit scores, credit scoring company FICO removed credit score distribution charts from its website. The deletions invalidate an alarming AP claim that the percentage of consumers who have credit scores under 600 increased from 15 percent to over 25 percent. A FICO spokesman said that the news agency's reporter used the 15 percent statistic "as a proxy for a pre-recession distribution curve."

In its false comparison to illustrate the alleged downward trend, the AP's summary uses the 15 percent figure from one score formula, and a 25.5 percent figure from FICO 8 (and, from Equifax data, only), a new score model. A chart concocted by AP for its story compares apples and oranges: The National Distribution of FICO scores vs. the distribution of FICO 8.

More importantly, FICO 8 is a credit score model not accepted in the automated underwriting guidelines of the two government-sponsored housing enterprises, nor even provided to consumers by FICO, itself. For instance, with regard to Equifax data, BEACON 5.0, not FICO 8, is the score model accepted by GSEs Fannie Mae and Freddie Mac for their automated systems. FICO's consumer website states, "When a significant number of lenders have upgraded, we will work with the credit reporting agencies to provide FICO 8 scores to consumers here on myFICO."

Prior to its removal, the National Distribution of FICO Scores on page 5 of the booklet "Understanding Your FICO Score," (5/09 (now dated 7/10)), matched none of the three distributions in a news release coinciding with the AP report. The distribution in the booklet indicated that 15 percent of consumers had a score under 600. Another myFICO.com page contained the same break-out. Now, both graphs are gone. On July 19, FICO said that it would replace them.

Comparing the two different score formulae, the syndicated wire service story appeared nationwide. But, FICO did not make such a a bold statement; "drifted down slightly" was the term used in its press release, and the 15 percent figure from the other score model was, properly, not mentioned. The three-year trend for sub-600 scores in BEACON 09 (FICO 8) is an unimpressive 24.1% > 25.2% > 25.5% (moving only 1.4% from 2008 to 2010).

The 25.5 percent mistaken assumption has stuck, and, like the notion that employers use credit scores, has found its way into the national media dialogue. USA TODAY, The Christian Science Monitor, CBS, CNN, CNBC, and NPR all published the same figure. The Wall Street Journal even named it Number of the Week.

With FICO's distribution charts gone, the current figure for those under 600 in the National Distribution is unknown. However, a page on Equifax's website indicates that those under 620 comprise only 20 percent of FICO scores. The discrepancy between that and the AP's and others' claim that 25.5 percent of consumers' scores are under 600 is a gaping hole in the alleged facts.