Is FICO still worth its weight?
December 5th, 2007 by Grant in: Credit, FinanceYour credit health may start going south, and it may not be your fault.
Currently, your FICO score is the long standing gauge on risk when it comes to lending money. Some are saying that the FICO financial thermometer may be due for calibration, all thanks to the current credit crunch, backed up by the mortgage epidemic.
Analyst Meredith Whitney, on the notion that more people have taken on “more house”, says that a loan-to-value (LTV) may be a more appropriate way to measure financial risk when it comes to lending money. Lenders who have put too much weight into credit scores when it came time to underwrite loans may be taking the most heat when it comes to resolving non-payment for mortgages.
“We believe LTV analysis will prove far more predictive of not just loss frequency, but more importantly of loss severity,” she said, noting that she believes investors have underestimated the severity of the current credit cycle, “as we expect losses to be far worse than in any period in U.S. history. -Source
As I see it, there are a ton of people out there with high credit scores but little collateral to back up a loan. Those 30-somethings with little debt, high credit scores, but little collateral are the target audience when it comes to being in over their head as a result of ARM’s resetting.
What do you think, is your credit score the most accurate measure of your financial risk?
Tags: credit score | FICO | LTV
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