Tom Quinn, who recently departed from Fair Isaac (who wants to be known as FICO), writes that “Myth #1” pertains to the inquiries made to a consumer (credit) report. The top myth, he claims, is that every inquiry for credit costs 5 points in the score system.
To give the myth mongers some credit, the notion has some foundation, since the scoring company uses the number 5 in its brief official statement. However, the fatal flaw is the incomplete explanation in the paragraph mentioning “5 points.” It says that one additional credit inquiry made for the purpose of applying for credit may have no effect, at all, on a person’s score. Then it says that, for others, one additional inquiry would drop the FICO score less than 5 points (indeed, 4 points or less, in other words).
But, that is where this consumer appeasement exercise by (oh, alright, FICO) FICO falls apart. It fails the logic test because it means that for others, still, an additional inquiry may cost 5, or even 6 points. And, in turn, for others beyond that, logically, it could mean that the algorithm drops the score 100 points, or even 400 points. Who knows?
That is probably not the case, but mathematically–based on the word problem–possible. If The Wizard had said, “For all others,” instead of just “For others,” you could make the (4-point, at least) assumption. It is akin to a trick question.
Here is the ultimate inquiry query in this inquiry: What is the maximum number of points that an inquiry can cost in the Fico credit score?
As unsatisfying as it is, Quinn’s brief and frank statement answers it: “There is no fixed set number of points that an inquiry will cost.”
While opinions vary on which myth is really #1, the one about 5-points-for-an-inquiry is complicated, and soundbite explanations just don’t cut it. When even The Wizard itself uses the phrase “typically only accounts for five points” (key weasel word: typically) it’s enough to pull your hair out. Quinn’s explanation says that there is no certain number of deducted points associated with an inquiry, and that, generally, “inquiries have a relatively minor contribution” to the score. Of course, that is not much to hold onto, either. But, perhaps, that lesson of his elegant brevity (the antithesis of this post) is inherent and based in wisdom and real experience from within the system: saying less is more. Pundits and journalists love to publish numbers, so if you are in an interview and say “5 points,” you had better be sure that the writers get the nuanced part of the the figure, too. The results of the failure to do so can be disasterous.
Fortunately, we have this great, big (almost) world-wide, collective intertwined web thing that we can use to explain things to each other (and make corrections), Kumbayah.
So, what evidence does Quinn give to back up what he is saying about inquiries? None, but the guy has expertise few can claim: The score company ex-vice president is fresh from Capitol Hill, having testified on behalf of his former employer as late as last year. He joins another former insider, John Ulzheimer, as a credible expert (as opposed to
authors blowhards and anybody with a website) making cogent public statements about FICO credit scores. It ain’t much, verified, or proven publicly–and we can take it on faith or play the cynic–but it’s the best we’ve got.
On the other hand, even Quinn’s platform with the perfect, enviable name, Credit.com, gets it wrong about credit scores elsewhere on the same website.
Meh. Whatever. Myths are everywhere.