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Q: sue due to flawed FICO formula ( Answered,   0 Comments )
Subject: sue due to flawed FICO formula
Category: Relationships and Society > Law
Asked by: aguorahillschica-ga
List Price: $20.00
Posted: 04 Jun 2005 19:54 PDT
Expires: 04 Jul 2005 19:54 PDT
Question ID: 529427
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
your reputation.

If you do have an answer for this question, please include some logic
and case references.

Request for Question Clarification by pafalafa-ga on 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 aguorahillschica-ga on 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.
Subject: Re: sue due to flawed FICO formula
Answered By: pafalafa-ga on 05 Jun 2005 09:15 PDT
Not only can FICO be sued, they have been.

You'll find detailed documentation of Baker v Fair Isaac here:

and the actual complaint that was filed is here:

Part of the complaint alleges fundamental inaccuracies in the scoring
methodologies, including this excerpt:

"41.	Since 1997, plaintiff has been publishing the ?FICO Credit
Scoring is Fraud!? web page at The scanned credit reports
document how FAIR ISAAC credit scores can change up to 24 points
within just a few days and with no changes on the credit reports."

and this one:

"49.	Plaintiff also published bizarre credit reporting at her credit
forum, such as CAPITAL ONE reporting a ?current balance? higher than
the ?most owed? (or ?high credit?, depending on the CRA) amount for
reader Erik. Plaintiff discussed the scoring of this account with
BARRY PAPERNO and he assured her that the ?over limit? balance would
be excluded from FAIR ISAAC?s scoring calculations."

Some more up-to-date information on the case (which appears to be
embroiled in legal maneuverings) is here:

I hope this information fully meets your needs.  

However, please don't rate this answer until you are fully satisfied. 
If there is anything else I can do for you, just let me know by
posting a Request for Clarification.

All the best,


search strategy -- Searched Google and legal databases for [ "v Fair Isaac" ]
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