FICO: Not a Great Default Predictor

Joe Nocera has an interesting article in the NYT about FICO credit scores. Banks rely almost exclusively on the FICO scores when making loan decisions — despite the many flaws in the FICO scoring process:

“FICO scores are not the best predictor. The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores, according to Dave Zitting, the chief executive of Primary Residential Mortgage, a leading mortgage lender. And yet, he said, “The credit score has become the line in the sand for the banks.”  (emphasis added)

Interesting stuff . . .


Credit Score Is the Tyrant in Lending
NYT, July 23, 2010

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