This is a guest post from Greg Vandagriff. Be sure to check out his great new site, Equidash!

In the wake of the financial cataclysm commonly referred to as the American mortgage meltdown, lenders found themselves in a precarious position as their highly-leveraged empires began to collapse under the weight of mortgage fraud, greed, and dishonesty. Confronted with a problem entirely of their own making, these bankers did what any self-respecting person would do in the same circumstances: they looked for someone else to blame.

Who to blame, though? The credit industry was caught “red-handed”, and they couldn’t get away with blaming the disaster on just anyone; they needed someone on the inside to take the hit. They needed a fall guy, a sacrificial lamb. Faced with this decision, it didn’t take long for creditors to start pointing fingers at Fair Isaac Credit Organization (FICO). The monopolistic hegemon of the credit scoring industry was the perfect scapegoat.

FICO boasts the lion’s share of the credit scoring market and consequently enjoyed the reputation of owning the most widely-used credit scoring models in the world. By smugly using this advantage to force-feed their formula down the collective throats of the credit industry, FICO was untouchable. They were above the credit bureaus, the lenders, and the borrowers. Or so they thought.

You see, the credit industry has something of a love/hate relationship with FICO, and recent events, combined with FICO’s penchant for behaving like a spoiled brat, have dramatically emphasized the “hate” portion of this association. After all, why should lenders have to pay FICO to produce a score that doesn’t accurately portray a borrower’s creditworthiness?

Suddenly the tables had turned on our dear friends at FICO. Now their reputation for having the most widely used credit scoring models was turning against them as those algorithms “failed” to predict widespread defaults across the country. Having paid millions of dollars in exchange for the use of a reputedly infallible scoring model, lenders were determined to get their money’s worth from FICO, even if it meant beating the tar out of the company’s image and reputation through widely-publicized criticism in the media.

Granted, FICO never claimed their formula was the sole, infallible predictor of default on mortgage loans… and yes, there technically were massive loopholes in mortgage underwriting guidelines that were mutually exploited by both loan officers and borrowers… but this wasn’t about justice, this wasn’t about “right” or “wrong”. This was about saving face, dodging federal indictments, and buying precious time to salvage the mangled, disgraced husk of one of the oldest industries in the country. Cold as it may sound, this was business.

And you know what? It’s working. FICO is feeling the pain. Want evidence of this? I give you FICO 08. The latest revision to their scoring models comes across more as a desperate knee-jerk reaction to the criticism leveled at them by the media than anything else.

Now before you take pity on poor FICO, understand that they had it coming. They forfeited all rights to pity when they:  1.) Embraced the practice of taking advantage of consumer ignorance by marketing an insultingly simple product  via quasi-celebrity branding and 2.) Embraced the practice of screaming like a little schoolgirl whenever someone challenged their market dominance.

Next week we’ll take a closer look at FICO 08 and whether or not you should care about it.

Related posts:

1. The New Face of FICO
2. FICO vs. VantageScore and the Truth About Free Credit Scores
3. Why raise your Fico score?
4. New FICO Score Information
5. Everything you wanted to know about Fico Scores*