I found this article and thought it was interesting.  Wanted to share with my readers.

The CEO of Fair Isaac, the company behind the FICO credit score, stands by his company’s credit scores but sees more pain ahead for consumers.

NEW YORK (CNNMoney.com) — If you’ve applied for a mortgage, auto loan or credit card recently, then you’re probably intimately aware of what your FICO score is.

Banks rely heavily on these credit scores to determine whether or not to give consumers a loan. And as Wall Street and Main Street sort through the mortgage mess, people are looking for scapegoats.

Some have argued that the company behind the FICO score, Fair Isaac (FIC), as well as other companies that provide credit scores, such as Equifax (EFX), Experian and TransUnion, are partly to blame since their credit scores could not accurately predict subprime default risk.

I talked to Dr. Mark Greene, the chief executive officer of Fair Isaac to get his thoughts about this criticism as well as his perspective on the mortgage market and economy at large.

Greene told me it’s not, uh, fair to blame Fair Isaac for the credit crunch.

"People are looking for fingers to point and the FICO score comes in for critique," he said. "But we are quite confident that it has performed as well and is not an appropriate source of blame."

That said, Greene does think there is room for improvement. Fair Isaac is in the process of rolling out a new credit score product, FICO 08, in May. Greene said the new scores will focus on strengthening the predictive accuracy of credit risk of subprime borrowers as well as so-called "thin file" borrowers – people with little credit history.

Still, Greene maintains that credit scores are only one way to judge a borrower’s creditworthiness.

He said the banks with the most problems with mortgages are those who relied solely on credit scores and failed to look at the other two of what he dubbed the "three Cs": collateral and capacity to repay.

Along those lines, Fair Isaac is also rolling out in May something that it calls a Credit Capacity Index. That will help banks determine how much additional debt a prospective borrower can handle.

These products may help lenders do a better job of gauging the creditworthiness of prospective borrowers. But unfortunately for Fair Isaac shareholders, it’s unlikely to lead to a turnaround in the company’s fortunes anytime soon. The mortgage crisis is taking its toll on Fair Isaac’s sales and profits.

Before the company reported its fiscal first-quarter results last month, Fair Isaac lowered its sales and profit targets. The company also warned that results for the second quarter and the full fiscal year, which ends in September, would not meet analysts’ forecasts.

Analysts now expect sales to increase just 1% this year and that profits will only be up 4%. The stock has plunged 23% this year.

Greene wouldn’t address his company’s outlook specifically but he did have some not so encouraging things to say about the economy at large.

Greene, who joined Fair Isaac last year following 12 years on the financial services team at IBM (IBM, Fortune 500), also has worked for Citicorp (now Citigroup (C, Fortune 500)) and started his career in 1982 as an economist for the Federal Reserve.

"This slowdown is the first in thirty to thirty-five years that is clearly consumer-led," Greene said. He added that we "probably are entering a recession now."

Greene said it’s usually easier to predict when a corporate-led recession will end. The big problem with the current downturn is that it’s more about confidence — how consumers feel about job security and their household income.

If consumers are able to borrow more to buy homes, cars or other big-ticket items, that could help get the economy back on track. But with lenders so concerned about risk, credit standards have tightened. And until they loosen, it’s hard to forecast when this economic pain will be over.

"How quickly the ability for consumers to get credit is an important element in how quickly we recover," he said.

Another problem, Greene said, is that he’s hearing from his customers that more and more consumers are reversing their typical payment habits and leaving their home payments for last, confirming a trend we reported about earlier this week.

Before the housing downturn, people tended to pay off their mortgage first, followed by their car loans and finally, their credit cards. But with Americans now facing a cash crunch and a precipitous drop in housing prices, some have decided the mortgage is no longer their top priority.

"People are paying their credit cards first. They don’t feel the same incentive to pay off their home because of negative equity," he said.

That’s obviously not a good sign for lenders that are already wary of extending more credit, which could mean that this downturn could lag on for a bit.

I tried to get Greene to predict how much worse the economy can get and when things might turn around. But his training at the central bank has apparently served him well.

"I learned a trick while at the Fed. Never give a date or a number," he said.

Clean Up Your Credit or Forget It

Just when home prices and interest rates are really starting to look attractive, Fannie Mae and Freddie Mac announced increased delivery fees and new Loan-Level Price Adjustments, making credit much more expensive for potential homebuyers and homeowners looking to refinance. These increased fees are mandatory and have nothing to do with your mortgage professional. They are simply Fannie and Freddie’s way of recouping losses associated with the recent rise in delinquencies and foreclosures. Under Loan-Level Price Adjustments, additional costs are assessed to mortgages based solely on FICO credit score ranges that fall below 680. In the mortgage industry, this is called risk-based pricing, and it can really add substantial costs to a mortgage if borrowers aren’t credit ready.

If you or someone you know intends to take advantage of the low home prices and the lowest mortgage interest rates in years, please call us right away. We’ll get you a copy of your credit score and see what, if anything, needs to be done. Sometimes small changes to your credit profile can yield big results that could save thousands of dollars on your mortgage. Other times, professional credit repair may be required, and this process could take up to six months to reach the scores you need. If you’d like more information about these new fees or a free copy of our informative Consumer Credit Scoring Booklet, just give us a call.

Consumer Credit Counseling groups are popping up all over the internet and on TV adds. I have a major pet peeve about these companies. Most of the companies are legit in what they offer and what they do, but what I have a problem is that they do not disclose to the consumer the effect it will have on their credit rating by using their services.

When you use the service of a Consumer Credit Counseling agency or “3 C’s”, “CCC” as they are know in the industry, you need to be aware that you will suffer some major re-precautions from the use of their service. The use of their service will appear on your credit report as “under debt management” or “Consumer Credit Couseling’ or many other possible scenarios. The future credit companies will then categorize you in the same manner as if you where filing bankruptcy under the chapter 13 title of the US Bankruptcy code. Your record is damage for 10 years. They never tell you this but if you read the find print you will find it.

So if you plan to use one of these services please make sure you clearly know what you want to do. You may want to simply file a Chapter 13. Keep in mind that new changes in the Bankruptcy laws require that you attend a CCC training or counseling session in order to proceed with a bankruptcy. I find it rather dumb. The changes in the Bankruptcy law was lobbied by large CCC companies as an effort to drive more business in their direction. I simply see that CCC’s are a private method of doing Chapter 13 with no added benefit.

The CCC are one more idea that qualifies in the “fleecing of America” category in my book.