Credit Check
Late yesterday I recorded an interview with Terry Gross on Fresh Air. She is one of my favorite interviewers (what a voice!). She wanted to talk about credit reporting agencies. What made the interview stand out was her introduction, which began with a story about her husband's trip through Credit Reporting Hell.
Her husband's experience is no real surprise. After all, a 2004 PIRG study found that 87% of credit reports had errors, and one in four had an error big enough to change a credit score. A report from Consumer Federation of America reported that 31% of credit reports had an error that would change a credit score by 50 points or more. If a serious error hasn't happened to you, then it has happened to someone you know. Because Terry Gross's husband could hire a lawyer, the problem was eventually fixed, but not until he had spent a lot of time and a lot of worry.
Starting the interview with a personal story about the impact of an error raised an important question: Why should consumers be saddled with the responsibility to monitor the errors of credit reporting agencies? It is MY information about ME. Someone else is collecting it, creating errors, and passing those errors along to other people. Those errors can cost me a job, denial of homeowners' insurance, a higher premium on my car loan, a higher price to buy a car even for cash, and, of course, a higher price for a mortgage, a credit card, a car loan, or any other loan. And the system says, in effect, it is my problem to monitor the information. It isn't enough that I don't impair my own credit. It is also my problem to find errors that the company has put in, to document the correct those errors, to fight with the company if they won't believe me, to check to make sure the errors were removed and to make sure those errors never reappear. I can even pay for insurance to help me if a credit reporting company makes a mistake.
Since I already have a full-time job and a life outside that job, I resent this capture of my time. I also believe that a law that puts the burden on consumers to correct errors and puts no penalty on the credit reporting companies for passing along bad information is designed to encourage a high error rate. There are simply not enough incentives for the credit issuers to spend their money to reduce errors in the credit reporting system or to make correction cheap and quick.
In some states, it is possible to lock a credit report so that no one can add information or make any inquiries. That helps some people in some circumstances prevent future errors, but it still puts the burden on the customer.
A lot of people end up paying for bad credit reports. Many never know it because they don't know that the price quoted for insurance or a car was based on their credit score. They will just be poorer than they would have been if the credit reporting companies had more incentive to get it right.
Comments (15)
High error rates are bad for the obvious reason.
I just want to add that high error rates are good for a less-obvious reason: if the error rate were low, it could be much more difficult to get someone to believe that your report contained an error, if and when it did.
Making correction cheap-and-quick is probably the way to go here.
July 2, 2008 2:12 AM | Reply | Permalink
Here's an example. It didn't hurt my credit but it might have had I not jumped on it.
A couple of months ago a bill from an opthalmologist came to me in a hand-addressed envelope. The computer-printed bill inside was for someone with my name at an address I'd never lived at. I laughed it off as a pathetic attempt at bill collecting and put it aside.
A few weeks later, I got the same bill only now they had changed the address on the computer to be my address and sent the thing in a glassine-window envelope. I had become "official".
This alarmed me. Now this "debt" was enshrined in a computer system somewhere. I called them up and read them the riot act. How dare they assume that I was their patient? Did they have any evidence other than the same name? I pointed out that I have a multitude of opthalmologists at my disposal much closer than their 40-mile distant office in the boonies. They said they fixed it and I've heard nothing since.
What obviously happened here is that some cheapskate opthalmologist had his secretary do some very unprofessional bill-collecting. But this illustrates your point of how junk data can wind up, eventually, in credit reports. There are no standards about what kind of information is valid or not and any of it is grist for the mill.
July 2, 2008 7:53 AM | Reply | Permalink
I heard on NPR yesterday that credit card companies were raising interest rates on people with good credit ratings now. I'm assuming they are correct and so your credit ratings obviously mean little anyway. When kids in college, with no job, can get a credit card then credit ratings are the last thing these usurious thieves care about.
July 2, 2008 8:53 AM | Reply | Permalink
I heard you on NPR and thank you very much for bringing this to our attention. Sounds like quite a shakedown scheme. Or worse, America's version of the KGB or Stasi.
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However, I had one question: Can credit rating agencies be sued for libel? If not, why not? If they spread false information about you that ruins your reputation and materially affects your well-being, that would seem to be classically and supremely libelous--precisely what libel laws are written for.
July 2, 2008 9:11 AM | Reply | Permalink
I'm not an attorney, but I believe if they publish false information about you and you suffer damages as a direct result of that false information, then you have a reason to sue them. I would contact an attorney the first time you are refused a job, an apartment, a mortgage, insurance (or overcharged on insurance), or whatever other situation that arises from the false credit report. Don't take the abuse.
July 2, 2008 9:29 PM | Reply | Permalink
A couple of years ago my wife and a woman with the same name who lives in the same city were the victims of a credit report merger which occasionally happens when the credit reports of two different individuals are erroneously combined. Actually my wife was the victim. The merge helped the other lady whose credit was abysmal. My wife found out about the merge when she was turned down for a low limit department store credit card. Being turned down was embarrassing.
My wife is a bankruptcy paralegal and I am a lawyer who handles a fair number of consumer bankruptcies so we knew where to start and were able to clean up her credit, but the process took weeks.
My wife was not the victim of identity theft or anything sinister. The merge was a simple mistake on the part of one of the the credit reporting agencies.
Everyone, especially people who don't use credit cards and think they have good credit scores, should look at the reports maintained by the three principal agencies at least once a year.
July 2, 2008 11:31 AM | Reply | Permalink
Dumb question here:
Why doesn't credit reporting confict with my right of plublicity. If selling photos of Hannah Montana infringes her right of publicity, why is Fiserv allowed to sell information about me?
July 2, 2008 6:16 PM | Reply | Permalink
awlcorrect: Not a dumb question. I'll expand upon it: Google and gmail and a host of other data mining techniques are also similarly monitoring us and packaging us into "consumer types." That information is also sold about us.
July 6, 2008 1:39 PM | Reply | Permalink
"I resent this capture of my time."
Me, too!! And I'd like to add a couple of other things to the list.
I resent having to become an expert in the US tax code every freakin' April, just to avoid breaking the law. It should somehow be unconstitutional for any law to be so hard to understand that well-meaning and intelligent people could inadvertently fail to fully comply. (Witness Al Franken's recent issues.)
I resent having to become an expert in all the rules and restrictions of the health care plans offered by my company, which change year to year, and which -- like the nuances of credit reporting -- can have a high impact on my life and my pocketbook.
Things like these are set up to be complex, so that we can easily be victimized. Shouldn't be that way.
-- ARG
July 2, 2008 6:22 PM | Reply | Permalink
Here is what I do. I have stopped borrowing money. My credit score has gone through the roof. I will say though, that once all my former loan and credit card information expires, seven years after I pay off my mortgage, the formula they use to calculate the credit score will not work because it requires that I have a loan or credit card account - I assume. I'm not worried about it though. For all the other reasons people pull credit reports other than for issuing credit, is to look for big negative information, not to get a credit score. So as long as I have a clean report, I have nothing to worry about.
I have dealt with the credit bureaus to clean up the myriad of mistakes I had. It is like pulling teeth. However, persistence and knowing your rights is absolutely necessary. They will plop the error right back in the report if the creditor re-reports it. You have to fight with proof, if you can, and attack one or two things at a time. I got a good book on the subject and found it very helpful. "Guaranteed Credit" by Arnold S. Goldstein.
Once it is clean, you just need to check it each year. If you aren't borrowing money, any errors are very easy to find, and fix. Keep life simple, don't borrow money. If you want to get a mortgage to buy a home, find a lender that underwrites their own loans. They will look beyond the credit score. You don't have to borrow money to qualify to borrow more money - that's insane. It is an idea put into our heads by clever bank marketing. If you are putting a good down payment of 20% or more and have enough qualifying income to make the payment less than 25% of your total net income. You will qualify regardless of a zero credit score due to no borrowing of money. Actually, they will probably be happy to lend to you because you are responsible with your money and are not likely to ever go bankrupt, even if you lose your job. Show them a six month emergency fund, and they'll be impressed enough to definately qualify you.
We are letting ourselves get too up in arms about credit scores. Banks have us scared and on the defensive. The only way to fight back is not to borrow money to start with, accumulate six months of emergency money, and live below our income. You can then fight anyone who relies solely on your credit score, and can probably find a way to sue them for their negligent due diligence and overcharging you or refusing you a lease or insurance policy or job.
BTW, unless your job is handling money or confidential information, it is against the employment laws to refuse to hire you based on your credit report. It must be job related. And when employers check credit reports, they don't really care about the credit score, they care about the details in the report, specifically negative reporting.
The idea that you must establish your credit by borrowing money is a myth created by clever bank marketing. It sells loans.
Jim Anderson
http://www.thetruthaboutcredit.com
July 2, 2008 9:21 PM | Reply | Permalink
That's the way to do it folks! I do the same, and am now helping my family and friends do it too. It took a few years, but they're finally coming around to the fact that Credit Cards, lenders, and debt are not benevolent. My rec'd links (in addition to Jim's www.thetruthaboutcredit.com):
www.daveramsey.com
www.maxedoutmovie.com
www.optoutprescreen.com [This is the official site to stop all Credit Card offers from arriving in your mail box. The form takes about 90 seconds to fill out, and after 30 days, you won't get anymore Credit Card bear-traps, I mean "offers", in the mail. It's a beautiful thing.]
July 6, 2008 2:30 PM | Reply | Permalink
Has anyone given any thought to the view that this is another way (by design) to squeeze a few more nickels and dimes out of us by simply making errors that benefits the money machine that grinds us more and more each day?
July 4, 2008 2:08 PM | Reply | Permalink
Hey dixiebrick: You're right about this. In Part 1 (link below) of the recent interview Prof. Warren outlines this "catch" that once you correct a report, you have to pay again to see that it was corrected.
Consider it also from a bigger perspective: If everyone has errors in their reports, and everyone has slightly lower scores than they deserve (say, 50 points lower), then everyone is likely to be paying lenders just a little more in interest. Overall, even tiny percentage points in the lenders favor makes them millions --> billions more as an industry. Sick.
PART 1 - http://www.npr.org/templates/story/story.php?storyId=92049490
July 6, 2008 2:26 PM | Reply | Permalink
As I always say, Professor Warren is one of my Top 5 heroes in America today (along with Barack Obama, Dave Ramsey, Nathaniel Fick, and David Ortiz (#34)... :) ). Here are the links to the Fresh Air pieces:
PART 1 - http://www.npr.org/templates/story/story.php?storyId=92049490
PART 2 - http://www.npr.org/templates/story/story.php?storyId=92133862
My only explanation as to why none of this is limited or fought against in court is that there is a psychology behind how we operate with money. We're afraid to bite the hand that (supposedly) feeds us. For the average joe, they don't want to upset the lenders because if they ever "need" a loan and get denied, they ""won't be able to buy my son the GI Joe with the Kung Fu grip. And my wife won't make love to me cos I ain't got no money."" (as Eddie Murphy would say in Trading Places).
Just like in WALL-E (as Frank Rich points out today in the NYTimes), we're now a docile and consumption-blinded public. Individual as "Citizen" is down; but Individual as "Consumer" is way, way up.
Anyway, if there are going to be lawsuits to stop these invasive and oppressive practices, then we will have to have a whistleblower from inside CapOne or Providian, et al. who shows us internal reports that their goal is to "trap" us. Perhaps we'll start paying attention when we realize they're preying on our children in college?
PS - I've never had a Credit Card, I took out a Student Loan, and took out 3 small installment loans in my life (all paid off within 4-5 months). I paid everything off and have ZERO debt of any kind (no car payment or mortgage). I am NOT rich. But I have a 700+ FICO rating. You CAN live without Credit Cards.
July 6, 2008 2:02 PM | Reply | Permalink
nytimes.com/2007/08/27/opinion/27mon2.html
July 6, 2008 5:26 PM | Reply | Permalink