Date:         Mon, 19 Feb 2007 22:23:30 -0500
Reply-To:     Tom White <tw2@MAIL.COM>
Sender:       "SAS(r) Discussion" <SAS-L@LISTSERV.UGA.EDU>
From:         Tom White <tw2@MAIL.COM>
Subject:      Credit Bureaus--Legal Liability and Model Validation
Content-Type: text/plain; charset="iso-8859-1"

Thank you all for contributing to this post.

I agree with the recent posts talking about how a model looks at AVERAGEs or GROUPs of people rather than individuals.

But I think one subject that keeps bothering me and I think all of the posters have missed so far is this:

Credit Bureau scores have BECOME SO INSANELY IMPORTANT in our society that VEY BAD adverse decisions can be made and are made for _INDIVIDUALS_ like me and you.

Simply because we cannot develop models to predict _INDIVIDUAL_ performance, we must satisfy ourselves with mediocrity in the name of $$$$$ ? Simply because we cannot develop models to predict individual performance, we must refuse employment to an INDIVIDUAL who poses NO RISK to an employer? (There may be very few exceptions, I understand, since we now equate FICO score with MORAL CHARACTER as well.)

Take one of _YOU_, as an example, with a stellar FICO score and no blemish ever: You have always been paying your bills on time, nothing bad ever. You are an exteremely responsible financial person. Hey, you have even stocked away a ton of rainy day money just in case you find yourself unemployed some day and you want to be able to pay your mortgage, car payment, etc. I mean, YOU are INSANELY responsible as I have described here. Now a hospital comes along, posts this FALSE information about you, your score goes to 610 and cannot rent an apartment. Now, most of you statisticians on this forum will tell me with a staight face that this extremely responsible person who poses no risk to anyone even if he/she became unemployed for many months, deserves to be GROUPED in a bucket with other individuals who do not have this financial profile? I do not accept that. If we do not have the mathematical skills or means to develop such a model for an individual, I say, let's get credit the way we got credit 80 years ago, namely, you go and you talk to your friendly person at the bank. Now you see how insane I am, right? But, I tell you, the way we base our lives on a SINGLE FICO score, no other questions asked, it is just as insane. (No, I am not that old! I am a baby trying to learn statistical stuff!)

If one of _YOU_ was refused EMPLOYMENT and you didn't have employer insurance to pay for you medical treatmnet and died, then, I suspect, you would MORE SERIOUSLY consider the GRAVITY of Credit bureau scores. (Not that you would care once dead, I am just saying ...) Unfortunately, NO ONE looks at ANYTHING ELSE other than one SINGLE NUMBER: FICO score at that particular moment. No one really cares that you have NEVER exhibited any bad financial habits as an INDIVIDUAL in the past and NO ONE really cares that this one single blemish right now may, in retrospect, may prove to be just that: a SINGLE blemish not to be repeated again for many years to come. But, in the meantime, _YOU_, as an INDIVIDUAL, have already felt the WRATH of the FICO score via unemployment, or, to a lesser degree, via unfavorable terms in a financial transaction. Even if the blemish is FALSE!!!!!!!!!!!!!!!

When you call up a credit card company to ask for a credit card, all they do they look at your credit score as of that moment and they could care less about how responsible you have been in the past. So, in essence, an INDIVIDUAL may pay heavily for the bad behavior of the GROUP average.

The other thing that NO ONE has picked upon is what I have said many times: The information provided to the credit bureau is WRONG! Yet, as pretty much all of you seem to say, well, who cares? The credit bureau can develop models based on information it receives and the credit bureau has no obligation to fully investigate the derogatory information. Garbage in garbage out?

That's where I disagree with most of you: When it comes to my employment, or to my getting a mortgage to house my family, or to purchase car insurance so I can go to work, or I can rent an apartment so I can have a roof over my head, you bet your life I DEMAND that the credit bureau fully investigate any derogatory information before it includes it in the model. The credit bureau can put the derogatory information aside and not included it in the model until and when it is completely verified as such.
I would even say that the credit bureau ought to check with _ME_ (yes, _ME_) BEFORE it posts any negative information to make sure I agree with this bad information. If I don't agree, the item goes into a dispute status until resolved, be it even in a court of law.

Sig mentioned predictive models do not need validation. Well, I will leave this one alone since I like Sig so much it is beyond belief. But I will say this much: In my view, model validation better be a BIG OBJECTIVE of most banks and financial institutions since badly fitted models, or models which do not pan out in life end up costing banks lots of money in lost revenues, not to mention customers who end up not getting a loan because a bad model said so. But then again, didn't one of you say life isn't fair?

If, heaven forbid, one of _YOU_ pulls a credit report and finds a few delinquent accts on there, which in fact have been paid, and you dispute with credit bureaus, and credit bureaus do not lift a finger to verify this information, and you are stuck with a 475 or 580 score, and you can't rent an apartment, or rent a car, or be able to find some oxygen to breath, then perhaps, you will understand what I have been trying to say in this thread all this time.

FICO scores should and ought to be treated much more seriously when it comes to model development--I am not convinced that they are.

My friend is now waging a war to try to remove this FALSE information from Equifax. Equifax says this FALSE information is TRUE. The hospital that posted the collection amount says it is true. Yet, a checked cashed by the hospital (a bank digital copy with all the numbers on the back proves that) serves as NO PROOF to either Equifax or the Hospital. So, she is stuck with a 605 or sth like that score when in fact a couple of months ago she had a stellar FICO score of about 745 or so. And she never had a single blemish for as long as the bureaus keep information.

But you already said---who cares about her? As long as the masses/averages indicate she will be a bad future risk, well so be it, let her have her 605 and live with it for now, even with the WRONG information used by FICO score.

You now say, Tom, you are a CRAZY person! In this world we live in where we must have everything right this nonosecond or else, who has the time or the money to do such a thing? And I say, well, that's why some of us end up paying a heavy price for even a SINGLE derogatory mark on the credit report. We, as a society, allow this to happen to us, and I say, hey, who am I, a NOBODY, basically, to raise such concerns on this esteemed forum.

And, of course, I am neither the first nor the last with these thoughts.

Thank you all!

tom

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