Can the credit bureaus be sued for a flawed FICO formula?
I have noticed a couple features of FICO which seem to be inaccurate
predictors of risk. For instance, applying for credit increases your
risk, even if you are denied or choose not to accept the credit.
Student loans are not lumped together, but each treated as individual
items -- but being late on a payment makes you late on all of your
loans (as if it were a single loan).
I haven't seen the formula, but they also seem to consider late
payments on small amounts (under $50) is equivalent to delinquencies
on large, important accounts like car or home payments
It seems like deducting points off your score for something like these
is unfair and lazy on the part of Fair Isaac and the bureahs, and
costs a lot of money when you get a mortgage. Would it be possible
to file a lawsuit (and win) against Fair and Isaac (the company that
creates the FICO formula) and/or the credit bureaus for distributing a
score which inaccurately portrays risk? Perhaps as some sort of
libel with real damages as far as mortgage rates?
I'm sure Fair and Isaac says FICO is a score that the lenders
interpret as they see fit, but if they are lazy and produce a score
which inaccurately weighs certain factors, it seems they are ruining
If you do have an answer for this question, please include some logic
and case references.
Request for Question Clarification by
04 Jun 2005 20:53 PDT
With diligence, patience, and resources galore, you probably can bring
suit -- there are surprisingly few restrictions on one person's
ability to file suit against someone else.
The true question, I suspect, is do you have a snowball's chance in
you know where of prevailing in such a suit?
A key element of just about any lawsuit is a claim of damages. Just
because you feel the FICO formula is wrong is probably not -- in and
of itself -- the basis of a successful suit.
However, if you can demonstrate that the forumula has damaged in you
in some way -- cost you money, say, by raising your cost of credit --
then you might have a case.
Can you tell us a bit more about the "damages" issue?
Clarification of Question by
04 Jun 2005 23:35 PDT
Thanks for the speedy response.
Damages would be hypothetical, but in the following categories:
- extra money spent on a home mortgage due to a higher interest rate
over the life of a loan. A loan that has a 1% higher interest rate
over 30 years could cost hundreds of thousands of dollars more in
- "opportunity cost" -- if completely unable to obtain a mortgage (or
unable to get one within your budget) due to poor credit score, the
return on investment that could have resulted from a timely home
purchase be "damages". If a purchase is delayed, prices as well as
interest rates may rise.
- other more complex and less significant damages. with a lower
credit score, car insurance rates go up, and it becomes hard or
impossible to obtain a credit card. this cycles back in on itself, as
not having a credit card causes your FICO score to be low.