FICO and the Credit Card Financial Prison: How a Three Digit Credit Score Reflects Consumerism and not Financial Independence.
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Americans carry $900 billion in credit card debt. Approximately 75 percent of all those eligible for credit, those that are 18 years or older, have a credit rating score at any given time. This mysterious three digit score named a FICO Score is the basis for loans, interest rates, and should reflect your ability to manage debt. Yet this is one of those confusing public relation developed ideas that tries to water down the fact that going into debt is somehow good for average Americans. Not only is going into debt good, you now have a credit score that is supposed to be some kind of financial report card.
Like the rating agencies labeling crap mortgage backed securities as “AAA” and turning out to be more like “FFF” people need to examine the entire system from the ground up. The credit card industry is gouging the living daylights out of consumers as the unemployment and underemployment rate hits 17.5 percent. You would think that the banking sector that owes its life to the American taxpayer for bailing it out would have some sympathy. Instead, the new Wall Street oligarchy is running the show and we have new feudal lords running this country. The credit card is merely your key into the kingdom of serfdom.
The credit card industry with the mysterious FICO score would like you to believe that there is some enormous world of credit cards out in the market. In reality, it is simply rebranding. 5 issuers make up over 60 percent of all credit card debt:
FICO stands for Fair Isaac Corporation and provides services to the world’s 10 largest banks. No shocker there. The FICO score is based on multiple factors and ranges from 300 to 850:
Fair Isaac Corporation doesn’t store the credit scores but provides the big three credit reporting agencies with the algorithm to compute the score. It is a very tiny and selective world. You would think that something as important as a credit score would be open to the public but it isn’t. In our current market with bail outs and hidden agendas on Wall Street, transparency is of paramount importance. But of course why would they give up the algorithm since so much money is based on this score?
Looking at the chart above, there are flaws in the way the system is based. This is what we are told on the surface regarding the credit scoring model. I’ll give you a personal experience where my score dropped a few points for an otherwise financially wise move. The bottom feeders of the credit card industry have taken it upon their shoulders to now put clamps around good paying customers. Since they can’t squeeze any more blood out of 27 million unemployed or underemployed Americans, many who were recruited from companies like Providian, credit card companies are now going after “good FICO score” customers. On one card I had a line of $7,000. I rarely used the card but it had a “fixed” rate of 8.99%. Not bad for emergencies. But during this crisis as they were sucking the taxpayer dry and uncle Ben has opened up the Fed for banks to borrow at practically zero percent, these kind criminals decided to hike my rate up to 19.99 percent. No late payments. A few years of history. Since they were experiencing “unusual” changes in the economy (like screwing it up to being with) they had to raise my rate. So I called them up and canceled the card. What use is it raging against someone in India (I did ask my representative his location) when the true criminals are sitting on Wall Street? He stated that the only option was accepting the 19.99 percent rate or closing my account. I wonder if bailed out banks got ultimatums like that?
A few months later I noticed my overall FICO had dropped by 15 points. Not a big deal but what kind of logic is this? Is this the algorithm that is super top secret? This is like penalizing a gymnast for landing too many perfect dismounts. According to the system, the overall debt ratio increased because that $7,000 line is now vanished in thin air. Yet any person heading on the path of financial independence realizes that less credit card debt is good. The financial industry is fleecing the American public in so many ways they don’t even bother being careful about it anymore.
The Department of Justice did an interesting report a few years ago looking at Chapter 7 bankruptcy cases. As you would expect, as people got older the debt simply spiraled out of control:
The chart above simply shows the damage being done over years. Credit card debt is merely one factor in many bankruptcy cases. So you might say “well stay away from any form of credit then!” The problem is, even if you are looking to rent a home many people will simply run your credit score. Looking for a decent mortgage? Getting a good rate is largely based on your credit worthiness (at least now it is). Even some employers (the two that are hiring) will run your credit report. To function in our society the financial sector has largely forced people to comply like sheep. Think of overdraft fees. Why doesn’t the banking sector simply setup an opt-in policy instead of having everyone by default taking overdraft charges of $39 for a $5 cup of coffee? Because they make billions from this:
“Nov. 24 (Bloomberg) — U.S. limits on overdraft fees may cost banks more than $15 billion in revenue and prompt lenders to impose charges to close the gap, said the head of consulting firm Oliver Wyman’s North American financial-services business.
“We’re talking about $15 billion of revenue that basically falls right to the bottom line, so to take that out of the banking system then that’s $15 billion of capital that is not being created,” Michael Poulos said in an interview yesterday. “For some of our clients, this is a very big deal and it’s not clear that regulators have thought everything through.”
You notice how they call this revenue? PBS had a special on Frontline showing a banking industry lobby front man saying that the public wants overdraft access. Really? Show us the data. I wonder how much the public can take from this industry. It is literally bank robbery. They hide behind phony data and a structure that traps many Americans. Now that they can’t trap the poor, they are going after middle class Americans that are merely trying to make ends meet.
Of course, recent legislation is merely a token gesture. It has been gutted and practically written by the industry. The system is flawed. Wall Street and the banking industry have become invalid just like the FICO credit score. In California, we are seeing thousands of people default on mortgages strategically that had “excellent” credit scores. Why? Many don’t want to be paying for decades on an asset that has collapsed by 30, 40, or even 50 percent.
Until we reign in the financial sector, the average American is going to see their financial future sucked into the Wall Street vortex. Wall Street wags their finger and says, “keep up your credit score you little consumer” while they gamble like ADHD maniacs funded by the U.S. taxpayer on the most speculative products on the planet. Do as I say, not as I do.