Daily Capital

Weekly Market Digest: Calculation of FICO Credit Scores Will Change

The Impeachment trial commenced within the Senate this week – as a reminder, the Senate, which is Republican controlled, needs a 2/3rds majority to convict the President. While a sudden change in leadership would likely impact the markets, no outcome is certain at this stage.

The Coronavirus was another large news item this week, with 2 confirmed reports of the virus in the United States as of this writing.

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Amidst the above and decent earnings reports this week, U.S. & International equities fell while gold and US 10 year treasuries prices increased.

Weekly Returns

S&P 500: 3296 (-1.0%)
FTSE All-World ex-US(VEU): (-1.7%)
US 10 Year Treasury Yield: 1.69% (-8.26%)
Gold: $1,571.3 (1.0%)
EUR/USD: 1.103 (-0.5%)

Major Events

  • Monday – U.S. Markets were closed for the Martin Luther King Jr. Holiday.
  • Tuesday – The Supreme Court chose not to prioritize a review of the Affordable Care Act, pushing any rulings on the healthcare act out – likely past the upcoming presidential election.
  • Tuesday – The WSJ reported that Amazon is testing a payment system that uses a hand scan instead of the more traditional credit card swipe.
  • Wednesday – Elon Musk’s Tesla reached a market cap of over $100 billion with shares of the stock trading as high as $594.50 per share this week.
  • Thursday – U.S. Labor Department announced that jobless claims from the prior week came in under expectations.
  • Friday – A second case of the Coronavirus was confirmed in Chicago.

Our Take

The company responsible for the FICO Credit Score (Fair Isaac) announced changes to how it will calculate FICO scores. Some key changes – rising debt levels, consumers with ‘personal loans’ and those who have missed payments will likely see lower scores after the changes are implemented. These changes are expected to create a larger gap between those with good credit, and those with bad credit. While these more recent changes will likely tighten credit availability, it should be noted that a strong U.S. Economy and credit reporting changes over the past few years have resulted in better overall credit scores for consumers.

It is an interesting concept that the data utilized in determining a credit score can be so impactful to an individual at a personal level. For example, two people with a $300,000 mortgage may pay dramatically different monthly amounts as a result of their credit score.

More broadly, news reports from the week illustrated a continued focus on big data. From credit reporting agencies using new data points such as bank account values or utility bill payments to better determine credit-worthiness, to Amazon experimenting with payment systems that rely on the scan of a hand rather than a magnetic stripe, to hospitals providing third parties with reams of patient healthcare data; data continues to become an ever more important commodity in our society.

At Personal Capital we’re focused on bettering our use of User & Client data (which we do not rent or sell, by the way) to deliver a better experience to those who use our services. As technology and associated data becomes more accessible, we expect companies and individuals to benefit jointly, with businesses improving through data-use, and consumers getting a more relevant product or service. Already we are seeing some of this – just look within the Healthcare space: certain cancer treatments are being tailored to an individual’s specific genetic structure to improve survival rates.

The opportunities within the complex space of utilizing a nearly infinite number of data points are substantial – and we think that bodes well for the future of businesses, investors, and consumers.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Paul is a Certified Financial Planner® and has been with Personal Capital since they first moved to Denver in 2013. With over a decade of industry experience, Paul’s current role as Director of Advisory Service keeps him focused on a team of over 60 Financial Advisors and their clients.

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