
In Detroit a $6.5M loan fund threw FICO scores out, the results promising - rmason
http://www.businessinsider.com/jpmorgan-chase-detroit-entrepreneurs-of-color-fund-2017-8
======
thomas_howland
Credit scores are loose proxies for a conscientiousness score (which is why
they correlate with all sorts of useful stuff like likelihood you're going to
wreck an apartment, get in a motorcycle accident, or abscond with the till).
However there is ample psychological research indicating that you can locally
boost conscientiousness with a variety of techniques, mostly involving
continual follow up, breaking compliance into small steps, and reminding of
the benefits of compliance via frequent positive reinforcement. (It's fair
then to ask if this really counts as "conscientiousness" per se given that
level of intervention, or a more abstract measure of task completion).

It seems like this fund is using this to its profit. Good for them. It does
almost seem, given that level of investment in the actual enterprise, like
equity or some sort of hybrid instrument better represents the risk of the
investor & the amount of effort they're putting into seeing the ventures
succeed.

(Incidentally, this pretty solidly mirrors the approach to high-risk students
of basically saturating them with life coaching, which seems to work pretty
well as long as you can actually invest that level of resources continuously).

------
x0x0
A credit forum has back-engineered chunks of the scoring algorithm via
experiments run by members.

Your fico score is sensitive to net credit usage (quite reasonable), but also
very sensitive to the usage on _any individual card_. eg Say you have a fico
score around 800, $100k in total credit, and are using $1-2k for transactional
spending that month. However, you still have an old credit card with a limit
of $300, on which you charge $151. Maybe it's a gas card. Now you have an
individual card reporting more than 50% utilization (but still a trivial
amount of usage compared to your income and net credit.) Your score will take
a 60 plus point hit.

You will also take a hit if you don't have an installment loan. Hence people
find banks that allow you to prepay loans, take out $2k loans, then prepay
them down to the minimum balance the bank will allow; say $1/month for the
next 59 months. This can also bump your score 20-40 points.

Things like this, and their long fight against disclosing fico scores (and in
particular, _all_ your fico scores -- you have at least three relevant fico
scores per credit reporting agency: the old 04-ish versions used for
mortgages; fico08, commonly used for credit cards; and car ficos) can have
enormous impacts on eg the cost of a mortgage. Fico is an ugly combination of
stupid and/or evil.

~~~
FICO
This whole post is incorrect. I have been monitoring (really micromanaging) my
credit closely for ~5+ years and none of which you say is accurate in my
experience and your numbers sound completely made up.

60 plus point hit from someone otherwise creditworthy? No, just no. I had
~$120,000 in revolving credit. I opened up a new card with an $8,000 limit and
maxed it out so 99% utilization hit my report on one card. My credit score
only dropped about 20-30 points and it mostly recovered in about 3 months even
though I was only been paying the minimum 1% balance. (I was riding the
interest free period).

Don't think your $300 limit example is very realistic. Credit limits are only
~$300 on customers without a credit history or one with poor credit. Companies
typically will automatically up the credit limit as high risk customers become
more creditworthy. Nobody with $100,000 in revolving credit has such a low
credit limit on an individual card (and even if they did, it would be as
simple as asking for an increase, as a $300 credit limit on a card you plan on
actually using is totally infeasible)

Old versions of FICO are not typically used for mortgages, don't know where
you got that "information" from. I got a mortgage last year and FICO 8 was
used. I got 3 quotes and all lenders used FICO 8. (this information was
disclosed to me)

I didn't have any installment loans for many years and I was not penalized. My
FICO 8 score was 750+ every single month for years with only two credit cards
as my history. As long as you have a strong credit history installment loans
mean nothing over revolving accounts. Maybe you'll get a 20-40 point increase
from opening a new installment account, but that would likely come with
opening up a new revolving account as well. Furthermore, everything I've read
about FICO 8 says closed accounts count the same as open accounts for FICO 8
so taking out a loan and paying it off the next day counts the same as taking
out a loan and paying it off over several years.

FICO is neither stupid or evil, its totally rational from the lender's
perspective. I'm trusting there was some actual number crunching that went
into these algorithms. Lenders, landlords, and insurance companies wouldn't
use it if it wasn't working for them. Is it unfair to some populations? Yes, I
don't think that is disputed, HOWEVER, it's "obvious" from a layman's
perspective that someone who has used credit wisely is less risk then someone
whose never used credit. The unintended side effect is punishing people who
don't have a use for credit. Credit cards are becoming more important though
for everyday life, I once saw someone get turned away from renting a car
because he only had a debit card and no credit card.

~~~
x0x0
Here's one of many posts discussing the version of fico scores used for
mortgages [http://www.doughroller.net/credit/which-fico-scores-do-
mortg...](http://www.doughroller.net/credit/which-fico-scores-do-mortgage-
lenders-use/)

Googling will get you dozens more. Maybe you found one fico8 lender; good for
you. More likely, you have no idea at all what you're talking about. Further,
experiments mentioned above (you can find on creditboards or r/churning) were
replicated across many people, not just one.

~~~
FICO
I don't have any idea what I am talking about? Every single pre-approval I got
(3 different companies) sent me a dead tree paper disclosure in the snail mail
that showed all 3 of my credit scores for each credit bureau, when they were
pulled (month/year) and the algorithm used to calculate them (it was FICO 8 -
I pay attention to these things). Perhaps they use a different score when
actually underwriting but my pre-approvals used FICO 8.

Yes, there's plenty of people giving misinformation on the internet. You're
giving very _specific numbers_ out of thin air that are ridiculously
inaccurate from my personal experience.

(BTW, there's a back door way to get your credit report as many times a year
as you'd like rather than just annually)

------
diggernet
"The fund does away with a focus on FICO scores, helps prep companies ahead of
receiving a loan, and provides ongoing support."

So they've rediscovered "knowing and helping your customers", instead of just
seeing them as a number spit out by a computer. Awesome!

~~~
thomas_howland
I would be _extremely_ annoyed if my mortgage or credit card company actually
tried to foist some advise on me.

~~~
kashkhan
this is silicon valley. Every investor you meet tries to give you advice on
how to run your company and live your life, even if 99% aren't going to invest
in you.

~~~
godzillabrennus
I don't think that's limited to SV.

Investors/advisors with free advice are abundant.

Just remember it's worth what you paid for it 99% of the time.

------
pkaye
They managed to help 40 businesses. Could this kind of system scale up to 4
million credit card customers for example?

~~~
jaclaz
More properly, they hand picked 40 businesses that later came out as being
successful/capable of repaying the loan.

We don't have data to know if 40, 400 or 4000 businesses applied and then only
40 were financed or if all the 40 that applied were successful.

In other words, one may be reliable even if he/she has a bad credit record
(along the established though most probably unfair current ratings), but the
fact that these ratings are flawed doesn't mean that everyone with a bad
credit record is reliable.

It is likely that there is a "gray zone" of people that do not satisfy the
criteria of the current system credit ratings while still being good re-
payers.

All in all this seems a lot more similar to VC funding than to "traditional"
credit.

------
FICO
Fluff piece with misleading headline.

These are all new loans (they have only been issuing them for less than 2
years). I don't think we can conclude anything about those loans until they
are actually paid down significantly.

Also this isn't really lending as much as it is financial accounting
assistance. It's more or less similar to hiring an accounting professional who
also brings capital. It sounds like they are additionally helping with
management of the business as well. It's obvious that businesses that receive
this sort of assistance are going to do fairly well, especially because we can
presume their business plans were screened for viability beforehand. It's my
very unscientific opinion that businesses usually fail due to either a non-
viable business plan or mismanagement (and they often go hand-in-hand).

------
searine
>"I'm an African-American single mom, so I knew a bank wasn't going to give me
a loan, no matter my credit score," Gaines said.

I don't have the life experience to comment on this, but my intuition says
"business is business". Is that true? No matter the credit score?

------
youngcontrarian
From the article :

"

"A lot of this is just putting numbers into some sort of algorithm, and if
you're above you're good to go, and if you're below you're not," Heredia-Lopez
said.

"

Does not seem like an astute understanding of credit risk. I would not be
confident in the sustainability of this initiative.

------
gersh
What was the underwriting criteria? What percentage of the loan applications
got accepted? It looks they were looking to back entrepreneurs of color, but
the criteria beyond that look unclear. Were there specific criteria, or was it
just at the whim of the loan officer?

------
spraak
This reads like an advertisement

