Credit Score Borders on Being a Scam

[tagteam]

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@NCperson wrote:

it's a CREDIT report - not an INCOME report 🙂

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The income report is in the form of the credit application.

[NCperson]

the companies that create the Credit Report (equifax et al) do not take Credit Applications as they are not authorized lenders. 

[tagteam]

I understand that.

I was referring to potential creditors; they use credit scores and the information on the application for credit (i.e., the "income report") to make a decision.

[Opus 17]

Any lender (except a private person, I guess) has a fiduciary duty to their shareholders to assess the likelihood that a borrower will pay back their debt on time before lending money.  That can be accomplished by reviewing the credit report of the prospective borrower in detail.  I suspect that lenders have learned that a person's payment history is a more reliable predictor of future behavior than income or assets.  (A person might have assets and a big income, but no cash flow since they spend all their money at casinos, for example, and that does not show up on a credit report other than maybe as a history of late or below minimum payments.)

Any credit score is essentially a shortcut that condenses the credit history into an easily interpreted number.  It's crude and imperfect, but it streamlines the credit process -- you could never get a store credit card "instantly" at the checkout line without a credit score.  Some parts of the credit score model--like my score temporarily dropping 40 points when I put a big purchase on my credit card, even though I paid it in full and my score went back up--are probably not actually predictive of future behavior.   But the lenders are the customers for the credit score, if it wasn't useful, they wouldn't buy it, and FICO is constantly updating and adjusting their models to make them more useful for their customers.  

If you did away with credit scores entirely, you don't do away with the need for a lender to review the payment history of their applicants, you just make that process a lot slower, more complicated, and more subject to personal interpretation and conscious or unconscious bias. 

[cgervasi]

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@Opus 17 wrote:

If you did away with credit scores entirely...

For all the reasons in your post, we wouldn't want to do away with credit scores or boycott vendors who use them. There's nothing improper about businesses working out and a formula to find good customers.  The problem is  thinking it's a measure of something else, such that people buy services monitoring it and make personal decisions based on it.  

If someone makes literature for kids saying an important part of being responsible with personal finances is to monitor the credit score and take action to build and maintain it, it has become a dishonest sales tactic.  How do you do that? As @tagteam posted above, the score measures how well customers use their product and how much, for how long, how recently, and which types.  It's a complicated way of saying use a lot of banking.

[Eggsplorist]

I don't deny what you say; but In do think we can all agree that like many things we have to deal with, the credit reporting and rating system is not perfect, but ultimately it does perform a useful purpose in our economy. My complaints are based on an unfortunate personal experience about two years ago that exposed to me some of the weaknesses in the system. I missed a very small ($~15) billing from a large department store company because of some actions I had taken (I cut off receiving e-mails from them because of nearly daily advertising, which also cut off my receiving billings, and throwing into the trash, unopened, all mailings from them.)  My first clue is when my Discover card bill showed a drop in my credit score from 850 to 743!. I immediately found out what had happened and paid the bill and all (excessive) charges to the department store. I tried to explain to them it was just a mistake and could they do anything about it. They weren't very polite in telling me, "no." I wrote a letter to both them and Fair Isaac trying to explain it was an error on my part, that I had paid the bill (plus) as soon as I realized I had missed it, and that I thought an over 100 point hit to my credit rating was beyond excessive. Their replies (both) seemed to indicate to me that my letter had been interpreted that I was denying the debt (even after I had already paid it.) From then on, I could never communicate civilly with the department store and never could establish contact with a human at Fair Issac, so I just dropped it. In all honesty, I don't think the reduction has really impacted me financially, but, you know, sometimes it is the "little things" that get to you.  

[cgervasi]

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@Eggsplorist wrote:

 I immediately found out what had happened and paid the bill and all (excessive) charges to the department store. I tried to explain to them it was just a mistake and could they do anything about it. They weren't very polite in telling me, "no." I wrote a letter to both them and Fair Isaac trying to explain it was an error on my part, that I had paid the bill (plus) as soon as I realized I had missed it, and that I thought an over 100 point hit to my credit rating was beyond excessive. Their replies (both) seemed to indicate to me that my letter had been interpreted that I was denying the debt (even after I had already paid it.) 

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I think the people at the credit bureaus cannot remove correct information, so that may be why they're uncooperative.  It would have been nice if the store card had agreed to show it as paid in full as a courtesy to you, which I believe the credit bureaus would be obligated to show.  

Some of the curt responses may be due to their being cautious of running afoul of equal opportunity laws.  There's a sad history of banks participating in segregation many decades ago by not lending to African Americans wanting to buy homes in white neighborhoods.  They may just be afraid of anything like that, even on some stupid charge card, so they just follow a algorithm approved by the legal department to avoid even the appearance of discrimination. 

I would close that card if they won't show it as paid as agreed.   

Even if it's year's later, I'd go the annual credit report site and look at what they actually have on file for a payment history.  Maybe it's wrong.  Someone could have hit the wrong key and wrongly recorded the debt as having been 90 days behind or never paid.  I think they're pretty good about changing specific information that's objectively wrong.

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@Eggsplorist wrote:

In all honesty, I don't think the reduction has really impacted me financially, but, you know, sometimes it is the "little things" that get to you.  

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The big thing is building wealth and income and enjoying it.  The banking industry's opinion of you is a very little thing.