Let me begin by saying that I believe there is much misunderstanding on how the credit agencies work, what their purpose is and how they affect your life. I feel that in many ways the system we have currently is broken and is in need of repair. I have 2 major issues with the how the credit rating system has evolved in the United States and I’ll go into detail here now, I feel this is information everyone should know.
Who Do The Credit Agencies Serve?
The first thing that needs to be understood when discussing the Big 3 Consumer Credit Rating Agencies – Experian, Trans Union and Equifax – is who exactly their customers are. If you think the Credit Bureaus are here to look out for you then you are severely mistaken; the customers whom they serve are banks and other lending institutions.
Let’s think about that for a moment… When a business has a customer then the business needs to provide the best service and products possible for their customer, that’s basic good business. All successful businesses are customer centric and put all other concerns to the sidelines, they look out for their customers interests.
So what do banks and lending institutions want? They want customers who have a good likelihood of paying their debt but at the same time are not the highest tier credit, while it’s good safe money it’s not very profitable. Meanwhile on the other side of the spectrum are people who are a high credit risk and therefore have to pay the highest interest rates; very profitable but there is a big chance they won’t get paid back. That leaves us with the great middle where you have a good chance of getting paid back but still have to pay higher interest rates on borrowed funds. Shockingly enough, not really, the credit bureaus make it so that the largest group of borrowers are those in the middle tier credit brackets.
This is a system that is done intentionally to help their customers, to help them maximize their profits. The credit bureaus have arcane complex rules and formulas that they use to complicate and make it very difficult to have pristine credit. Their whole purpose is to make sure the groups of people in the top tier is kept to a minimum and that those who should be in the lower tiers are kept there for as long as possible. It takes a long time and a lot of hoop jumping to build up a good credit rating then just one little mistake and all of a sudden there is a negative trend on your profile and your score is chopped instantly 50 or 60 points.
I remember several years back before my bankruptcy; what actually started the entire spiral of madness and chaos was one accidental late payment, well it actually wasn’t a late payment they just changed my minimum payment and I didn’t catch it and paid on time but below the required minimum. From there things started to quickly and easily spiral out of control as revolving debt loans shot up in interest and payments eventually became impossible to keep up with.
Remember everything is designed to keep you paying higher interest rates for as long as possible.
Monopolies and Bureaucracies
The second big issue with credit reporting agencies and with most big large bureaucratic institutions is their inefficiency and wastefulness. I’ve seen it so many times when big dinosaurs with monopoly control in their markets provide horrible service and benefit to the communities they serve and work with. These behemoths are the antithesis of what Capitalism is and should be, they are actually a form of Mercantilism and it is a sad thing to see. It’s not anything inherently evil or malicious it is a result of bloated bureaucracy. The culture has atrophied, Capitalism has died in these entities; the desire to provide excellent service and benefit is gone, the ability to act and move quickly is gone, the threat of competition is gone. This corrupted culture leads to so many problems I don’t even know where to begin.
A shining example of this was an incident that happened many years ago to a friend of mine when he was a teenager…
His dad passed away when he was young and unbeknownst to his mom the credit agencies had mistakenly entered it that she had passed away. A couple years later his mom goes to buy a car and finds out that she is supposedly dead. I have to hand it to the car dealership they were willing to help her and work with her but she had to go through so much work to prove who she said she was and then they forced her to pay a ridiculous interest rate ignoring decades of excellent credit history. After that ordeal ended the nightmare of getting the credit agencies to fix their mistake began. It took 3 years of constant back and forth before they finally fixed her credit rating and returned her to the world of the living. Then at that point she had to begin to rebuild her credit from scratch.
The stress and frustration they went through was unimaginable and all because of a mistake made by the credit bureau!
As if all this wasn’t enough of an issue – and this is what prompted me to write this blog after listening to his story – he recently pulled his credit report and found that they had somehow put credit accounts from his deceased father onto his credit report, son and father shared the same first and last name but different middle names. He showed me credit cards and accounts that were on his credit report that had been open since the 1970’s – he was born in 1981.
The level of ineptness is shocking and disturbing. The credit bureaus have enormous power over consumers’ lives and it is a little scary to know that their interests and purpose lay elsewhere. These agencies serve an important and vital role but it’s important that as a consumer you are aware that they are not on your side.
Have you had any nightmare issues with your credit report? Incorrect or inaccurate reporting? Share your war stories in the comments below.
About Peter Serrano