There’s a fascinating new WSJ article, “FICO Recalibrates Its Credit Scores” that is worth your attention. The lede:

Fair Isaac Corp. said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.

The medical bill thing may make sense since otherwise creditworthy people can get torpedoed by medical expenses. What concerns me is the part about bad debts being excluded once a collection agency has extracted its pound of flesh.

The whole point of a credit score is to predict your chances of going delinquent. Saying that someone has a 780 FICO score if you don’t count those three settled credit card chargeoffs is like saying someone has a pretty good driving record apart from those three DUIs.

Why the changes? Read on:

The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk. Since the recession, many lenders have approved only the best borrowers, usually those with few or no blemishes on their credit report.

The changes are expected to boost consumer lending, especially among borrowers shut out of the market or charged high interest rates because of their low scores.

I may be reading too much into this, but the phrase “discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk” sounds like there’s some pressure to loosen underwriting standards. Is the pressure coming from the government in the name of expanding credit access, or from banks who want to book more short-term profits, or what? I have no idea. We saw both do-gooding and short-term thinking in the real estate credit markets last decade and that did not end well.

Hopefully I’m wrong and nothing bad will come from this. If I’m right, I’d expect credit card divisions will get a nice bump in their profits over the next year or two as they book a bunch of new accounts. With more profits, account valuation models will tell the marketing departments that in fact they can offer even higher bonuses and still come out ahead, so I’m hoping this will lead to a year or two of abnormally high sign-up bonuses.

Bank lending is a perpetual tug-of-war between sales & marketing on the one hand (“Book that loan now and worry about it later!”) and risk management on the other. Risk has mostly been in the drivers’ seat ever since the credit bubble popped several years ago, but perhaps things are reverting back to normal, at least until the new bubble pops.

Finally, I can’t tell from the article if this would work, but consider this scenario: run up a few hundred thousand dollars in credit card bills. Charge off. Wait until the debts are sold to collection agencies for pennies on the dollar, then settle. Rinse. Repeat. Feasible?

 

In the comments on his latest post, George writes,

Some time ago I started a draft blog post titled “Best blogging practices”. Well, I never got around to finishing that post! This has come up before actually. I just do not have the resources/capacity to pull this off.

The credit card shills do not know or care if their practices cross any boundaries. In order to make money they need to pump. Pumping works SADLY! So, it is a phucking treadmill once you get on it…you need to keep pumping to keep them. Bloggers are not wholly at fault, it is the whole phucking system involved! I mean, look at what Amex did. Basically kept around ONLY the MEGA pumpers…It’s just rotten.

If I did not have a day job I would certainly look to get something like this done. I think it is worth the effort!

What the heck, let’s give this a try. It’s been almost a week since I mined the TBB comments for a post idea anyway.

I don’t know exactly what George had in mind, but I’m going to list certain blogger behaviors in order from more ethical to less ethical.

Note that some practices don’t have much of an ethical dimension to them, but they do degrade the quality of the blog. For example, if a single blogger ran 10 posts a day for a solid month about the Chase Ink 60,000 point offer–well, bravo for informing the world about a pretty good deal, but I wouldn’t think there would be too many non-SEO readers left after such a cavalcade of pimpin’.

This list isn’t meant to be comprehensive or authoritative, it’s just my two cents. (Can I say “Starwood point” instead of “two cents”?) So here we go:

• Taking the time to answer reader emails and comments to assist them with problems / questions. Going above and beyond your usual blogging duties to share expertise, what’s not to like? Unless you kill a deal or lead folks astray of course (see below).
• Promoting non-affiliate offers/products/deals for which you receive no compensation. Great practice for the most part, just don’t kill the deal for a product that can’t support it. Case in point: This FWF thread documents a deal where an obscure credit union was letting people fund deposit accounts with credit cards. It died pretty quickly.
• Promoting affiliate links that represent the best publicly available offer for a credit card. By all means, spread the news! Just don’t overdo it.
• Promoting the same credit card link over and over again with nothing new to say about it. As discussed above, this isn’t really an ethical issue, it’s more of a blog quality issue. At some point, the noise overwhelms the signal. Lately it feels like I’ve been reading about one hundred OMG CHASE INK 60,000 POINTS!!! posts per day. Is there anything else in the world besides Ink 60K that I should be aware of right now?
• Making a post that contributes to deal killing.  There’s an intersection of “Helpful”,”Drives Traffic to Blog”, and “Kills Deals”, and it’s not often obvious where the lines are. Case in point: Travel Summary’s guide to manufactured spending, which drew some opposition from Marathon Man. I don’t know who’s right or wrong in this argument. There’s a political adage that says “All procedural arguments are insincere, including this one.” I’d repackage that as “All deal-killing arguments are insincere, including this one”. People–and I don’t exempt myself from this–tend to come down on whatever side of the fence benefits them. But, it’s a murky area.
• Pretending an affiliate link is new even though the only new thing about it is that the blogger is getting compensated for it. Wow, the Southwest 50K offer is BACK, BABY!
• Promoting affiliate links while failing to promote non-affiliate links. If you do this, you are for all intents and purposes an employee of the credit card industry, and there’s nothing wrong with that except most credit card company employees don’t pretend to be helpful bloggers.
• Knowingly promoting an affiliate credit card link that’s inferior to other publicly available offers for the same card. Shame on you!
• Promoting affiliate credit card links that are inferior to other publicly available offers and then deleting comments that point out what you’re doing. Fortunately nobody does this, right? Right?
• Making a post that could get readers in trouble of sort sort. Frequent Miler had a good write-up on the recent Evolve Money glitch/trick, blogged about by others, that could get bank accounts closed.

That all I have, additions / corrections in the comments below, please.