A Corrupt System More Americans Need to be Talking About

creditratingIn this country we concern ourselves with a varying degree of issues.  But there’s one that I rarely see mentioned anywhere and it has massive control over much of our lives—and that control only grows with each passing year.

While many fear the government and what it might “prevent us” from doing, this is something that has the power to make Americans pay tens of thousands more throughout their lives and it can even keep them from getting a job.

And the kicker?  Nobody really tells us how it’s calculated.

I’m talking about our credit scores.

And anyone who’s dealt with these credit rating companies know, they make massive errors—constantly.  Hell, we have three different scores depending on which company’s score you’re looking at.

I was once listed at an address I had never lived at.  Trying to get the company to change that seemed nearly impossible.  Accounts that weren’t mine have shown up without me knowing, and the only real way to monitor these companies is to pay to have access to your report.  Sure, you can get one free report a year from AnnualCreditReport.com, but that’s just once per year.  If you want hands-on monitoring of your credit reports, you’ll have to pay.

And as we’ve progressed technologically as a society, these credit scores have become more and more intrusive into our lives.  Once they just determined your “worthiness” of getting some line of credit.  Now your credit score is often used to determine your insurance rates for your car or home and can even determine whether or not you’re allowed to open a checking account.

Nothing quite like paying 5, 10, 15+ years on car or home owner’s insurance, without a single claim or late payment, yet unexpectedly falling on rough times privately (though still paying both insurance policies on time) only to still see your insurance rates double because your credit rating dropped.

It doesn’t make any sense.  Your insurance record should be your “credit score” for insurance policies.  Your record as a home owner or driver should be all that’s needed to determine your rates.  Being unable to pay your cell phone bill, resulting in downgraded credit, shouldn’t have a damn thing to do with how much someone pays for insurance when their insurance history is immaculate.

Hell, even employers have taken up with the practice of running your credit score before offering someone a job.  Which is extremely ironic considering people get denied for jobs due to their poor credit, yet if these people were given these jobs, they would have the income to pay their bills and improve their credit score.

Another issue that arises is how credit “hits” are handled.  It’s my opinion that unless your good payments are shown on your credit report, the bad payments shouldn’t be allowed.  Too often people will pay perfectly for years on items such as their cell phone or cable bill, only to fall on bad times.  Some unfortunate event happens where they can no longer makes these payments, the services are shut off and the balances are then sent to a debt collector and the “default” is put on your credit report.

Never mind that you might have paid for a decade flawlessly, that won’t show up anywhere—the only part that will appear on your report will be where you stopped paying.

Then there’s the completely asinine statement many have heard, “Bad credit is better than no credit.”  You could be financially stable, making good money, and have paid cash for most everything you’ve had.  Then one day find yourself in a situation where you have to take out a line of credit, well—good luck with that.  The fact that you have no debt is actually bad.

These people want you to have debt—but not too much.  See, your debt to income ration needs to be solid.  Meaning your debt needs to be a certain percentage of your income.  A debt to income ratio too high or too low will negatively impact your score.

Or there’s the stories I’ve heard about people pulling their individual credit scores and getting one number, say 705, only to apply for a loan and have that same company report their score as much lower—with no explanation as to why.

And I can’t forget the whole circus performance from these companies in how they reflect how you pay your debt.  Did you know, you can actually hurt your score by paying off installment loans too soon?  That closing a credit card often hurts your credit score?  That you need balances on cards otherwise opening credit accounts with zero balance can lower your score as well?  That following credit “promotions” and paying balances off before the interest would kick in can cause your score to drop too?

Does any of that make sense?  Hell no.

Now we all know why this system is set up the way it is, to screw most Americans.  It’s built to give companies an excuse to pay you less or charge you more.

Millions of Americans end up paying tens of thousands more throughout their lifetime because of a credit system built on secrecy, confusion and frustration.

While many might just say “pay your bills on time and you’ll have good credit,” that’s simply an ignorant response from someone who doesn’t know the first thing about how credit scores work.

If credit scores were just about paying bills, someone with no credit but a flawless record paying their bills (with cash) would have the best score.  But like I said before, if they have no credit they’re actually worse off most times than someone with bad credit.

And these companies really don’t “lose” money when people fail to pay their bills.  What almost every one of these companies does is create an account in their yearly budgets they consider “losses.”  But they balance these losses by overcharging services elsewhere.  Even if they had 100% of their customers pay their bills, they still would have this account where they assumed loss and still continue to charge customers more.

Then they “sell” these delinquent accounts to debt collectors for a fraction of what’s owed.  Then these debt collectors attempt to make a profit by making you pay “40% of your balance to settle this debt”—when they might have only paid 10% (or less) of what the original debt actually was.

So not only are most of these original companies not suffering any kind of real loss, because they’ve already assumed a certain amount of “loss” while charging more for their services to account for that, debt companies are making millions collecting money on debt that was never owed to them.  They just bid a small percentage on the total debt, then pretend to offer “deals” to get people to pay them money.

It’s a system rigged to squeeze as much as possible out of people, while trapping them into debt.

Because that’s what a “good credit score” essentially tells you that you must do—have debt to have good credit.  It’s a scam that I feel more people need to talk about—be enraged about.

It’s ridiculous that a handful of private companies, with seemingly no accountability to anyone, have such power over the lives of each and every one of us.  Then when we demand answers, they refuse to give us any.

And I feel it’s about damn time we put an end to this scam.

Allen Clifton

Allen Clifton is a native Texan who now lives in the Austin area. He has a degree in Political Science from Sam Houston State University. Allen is a co-founder of Forward Progressives and creator of the popular Right Off A Cliff column and Facebook page. Be sure to follow Allen on Twitter and Facebook, and subscribe to his channel on YouTube as well.

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  • The scam with credit is, they don’t want to pay people to review the applications, they want it all automated and that’s what we’ve got. A machine is approving or declining you credit application. They only need one credit reporting agency, not three.

    • Mary G.

      Only having ONE would be a monopoly. And that would be whole other can of worms!

    • Jane

      It needs to be like when my father bought his house. The lender asked him if he had any collateral. “Nope,” he replied.

      Do you have a reference? “Yup,” he told the banker. “I’m Lawrence’s son-in-law.”

      Banker wrote the loan on the spot, knowing the familial history and the family.. and knew my father would not default.

      Those days are LONG gone.

  • Liz Crowley

    Were you aware that there are 4th and 5th credit reporting agencies? Innovis and PRBC? Like the first 3 didn’t cause enough havoc in peoples lives with correcting your report now we have 2 more to deal with!

  • Lady 1

    One of the most frustrating pieces for me is that your credit score decreases when a company checks your credit score, and these inquiries remain for two years. All of the bad stuff (late payments, inquiries, etc.) shows up instantly, while paying down your debt can take up to 3 months to show.

    I use Credit Karma to monitor my credit score and reports for free. Its not perfect, but it is free and handy in between annual reports.

    • Gene

      Your credit score only decreases when a company checks your score by doing a “hard pull” — that is, they are checking it because you are applying for credit. The assumption is that if you are applying for credit, you are trying to get a loan, and if you get a loan, then your debt ratio will increase, so they are just pre-lowering your score a tad, LOL. If anyone does a hard pull on your credit, you can get that removed — but, why should you have to? It should be incumbent on the lenders to prove you actually applied for credit, not you to prove that you didn’t.

      When someone is just looking at your credit for their own purposes (i.e., they are checking on you, but you aren’t applying for a loan), or if you just want to see what your own credit looks like, that is not a hard pull and has no effect on your credit score (or, at least, it’s not supposed to have an effect on your score…)

      • Ted Govostis

        Not sure how it is done now, but back in the mid nineties when I worked customer service in a loan processing dept for one of the largest banks in the US/World, if a loan application was in danger of being turned down due to hard pulls, the applicant was given the option of providing a letter from the pulling entity telling whether they actually got a loan or not. I’m going to guess the models back then didn’t lower the score from the pulls, it was just the institution’s prerogative to protect themselves if they were worried that the borrower’s DtI ratio was about to increase drastically.

        That being said, the credit reporting industry is still crap.

      • Cathy Baumgardner

        WRONG!!! I worked in Accounting, Credit and Collections for years. Most every time it does affect your score.

      • Thinkinginpictures

        A hard pull…the fact that something so fucking ridiculous exists tells you something about our economy.

  • Maxine Jones

    I had a credit card stolen. The department store discovered it being used the very same day. We reported it to the police. $300 in fraudulent purchases were made. One year later, when i purchased a new home, I was charged extra fees at closing because the credit company reported it as a debt that I repaid! They should not have recorded it that way. it should have been erased completely because i wasn’t responsible for the debt on the card to begin with. The store agreed, but the credit scorre company didn’t comply. I didn’t know about the damage to my credit score .till after the mortgage transaction

  • Gene

    Each credit reporting agency has SEVERAL models for calculating scores, depending on who wants the score, what kind of query is being made, and what kind of loan or credit is being considered. If you think about it, it makes sense that there would be several models, because giving $300 credit on a small credit card that is paid off quickly is a much different thing from a 2nd mortgage for $10,000 that might be paid off quickly or might not, and that’s a much different thing from borrowing $30,000 to buy a car that would be paid off after 5 years, and that’s a much different thing from borrowing $700,000 (or more) to buy a house that would be paid off after 30 years.

    I have to explain this to people who come in to buy cars all the time — where I live, most car manufacturers and car dealers use Experian FICO Auto Model II. There isn’t just one FICO score, it depends on the kind of loan, and there isn’t just one car loan FICO score, because we’re using the Auto Model 2… and normally, that number is lower than the artificially high number you’ll get if you just go online and ask what’s your score (where most of the time you aren’t getting a FICO score anyway, and even if it is FICO, you aren’t getting an Auto Model score).

    • Jane

      Thanks for that clarity. What absolute bullshit this is!

  • Brenda Porter

    Just recently we were in the process of shopping interest rates, fees, and closing costs to refinance our mortgage. Like fools, we agreed to allow each potential lender to pull our credit report (you can’t get any information from them otherwise). We were floored to find out our scores dropped 5 points every time a report was pulled.

    • Cathy Baumgardner

      Yes and you have to be really careful because there are many companies out there who get your SS# and sell it to other companies who then pull a report on you and your score goes down some more and you don’t even know it. It is almost impossible to have a really good credit score.

  • 1JudgeNotLestYeBeJudged1

    Couldn’t agree more with this commentary. We need to become enraged and demand reform. Why the heck do employers get to see my credit rating? This system used to be only used for jobs wherein the employee may have access to cash therefore their credit “might” be reflective. Just like security clearances to work for the US Gov’t. When you were over-extended in debt, you might be more likely to “sell-out” secrets to other governments. How did things get like this? We’ve been asleep while our government was bought by banksters and rich & powerful corporations. We need to take back control of our government, thus our lives.

  • Jane

    It is geared to keep us in debt to the 1%. The 9% are the actual Middle Class. We are indentured servants.

  • BreakingGlass

    “We the people” have become we the prey. Its been open
    season for a while now.

  • Cathy Baumgardner

    I see no reason (and never have) why anyone needs to see my credit report to get a job unless I am handling huge amounts of money of theirs or I do the books for their company etc. That being said the Credit Bureaus and the whole system is a horrible joke on every consumer out there. They do whatever they want with those reports. Just try to get something off of it that is not true or negative and not true. You will fight tooth and nail to do it and they only allow you to say maybe six words or so to address the issue on your report. It has shown on my report that I lived in Michigan. It has been on there for years but they still have not taken it off even after numerous letters from me and the proof of where I lived at the time. It appeared there because someone at that address at one time tried to open an account in my name and they did not even have my SS# right. Until there are thousands of people and a grass roots movement to re structure and revamp this whole system it is skewed against the consumer.