DussaultCapital

Credit Card Crunch: Creating a New Generation of Subprime

I'm not convinced that FICO scores will drop en masse when credit card companies trim credit lines. Yes, it will lead to higher credit utilization ratios. However, if everyone's credit utilization ratio rises then FICO will have to adjust the scoring model to compensate.

If the low risk folks that never default end up with higher utilization ratios then why would a scoring model penalize someone else for having a similar credit profile? The model will look for differences in credit profiles that are predictors of default. If credit utilization ratios rise across the board that does not become a differentiating factor for prediction of default.

The models are constantly being tweaked and will change with the times - though I don't know how long this takes. It would be interesting to have a FICO expert weigh in, but these folks are tight lipped due to proprietary nature of the biz.