You say “FICO scores do not seem to be made with a special process. How can they be especially good data?” The score was presumably designed for the purpose of assessing risk. Per Wikipedia, FICO scores were introduced for that purpose based on credit reports. I highly doubt that the Fair Issac company did that with “no special process.” Most likely, a data analysis was done where many different possibly relevant data points were pulled from credit reports and then analyzed to see which would be predictive. I imagine the weighting between the factors was optimized for that purpose.
Your explanation of how the various factors are relevant to creditworthiness mostly makes sense. The best predictor of future behavior is past behavior. I do think that for the majority of people a FICO score is getting at a mix of trustworthiness and stability. If someone has a long track record of paying their debts and nothing has changed in their financial situation, then there is a high probability they will continue to pay them.
Keep in mind also that credit cards and many loans also ask for your income with legal consequences if you lie. Combine FICO score with sufficient income and you have eliminated a large risk factor that may not show up yet on a credit report (i.e. loss of employment).
The only factor that has always seemed odd to me is credit mix. Indeed, Wikipedia has a section in its Criticism of credit scoring systems in the United States page about Poor predictor of risk, which is mostly about how a mix of credit can be misleading. For example, I have no installment loans because I don’t own a house, and my car is paid off. Does that make me a worse credit risk? No, in fact, it makes me a better risk because I have lower expenses and so much savings that I always buy cars with cash. The best theory I can come up with is that not having a mix of credit types is predictive of being low-income, since low-income people are less likely to own a home and more likely to own used cars that they don’t have a loan on, or to not even own a car.
I’m confused as to why you are confused.
You say “FICO scores do not seem to be made with a special process. How can they be especially good data?” The score was presumably designed for the purpose of assessing risk. Per Wikipedia, FICO scores were introduced for that purpose based on credit reports. I highly doubt that the Fair Issac company did that with “no special process.” Most likely, a data analysis was done where many different possibly relevant data points were pulled from credit reports and then analyzed to see which would be predictive. I imagine the weighting between the factors was optimized for that purpose.
Your explanation of how the various factors are relevant to creditworthiness mostly makes sense. The best predictor of future behavior is past behavior. I do think that for the majority of people a FICO score is getting at a mix of trustworthiness and stability. If someone has a long track record of paying their debts and nothing has changed in their financial situation, then there is a high probability they will continue to pay them.
Keep in mind also that credit cards and many loans also ask for your income with legal consequences if you lie. Combine FICO score with sufficient income and you have eliminated a large risk factor that may not show up yet on a credit report (i.e. loss of employment).
The only factor that has always seemed odd to me is credit mix. Indeed, Wikipedia has a section in its Criticism of credit scoring systems in the United States page about Poor predictor of risk, which is mostly about how a mix of credit can be misleading. For example, I have no installment loans because I don’t own a house, and my car is paid off. Does that make me a worse credit risk? No, in fact, it makes me a better risk because I have lower expenses and so much savings that I always buy cars with cash. The best theory I can come up with is that not having a mix of credit types is predictive of being low-income, since low-income people are less likely to own a home and more likely to own used cars that they don’t have a loan on, or to not even own a car.