Credit Reporting Agencies - When will they be Held Accountable?

The trinity of three - Equifax, Experian & TransUnion - the three main cerdit reporting agencies (CRA) that have determined our financial worth. I have a huge problem with them due to their inconsistencies & their lack of cooperation when a consumer attempts to clean up their credit. What really makes me mad is that they sell your personal data to companies unsolicited (those credit card, etc., offers in the mail) which ends up on your credit report as an inquiry, dragging down your credit score. You call and request an opt out of these solicitations, but you still receive them. Even the "free credit report.com" commercials you see that tries to get you to obtain a free credit report will sell you credit monitoring services is "powered by Experian"! IOn their website, you are automatically enrolled in the credit monitoring program & have 7 days to opt out. If not, you will pay $14.99 a month until you cancel! When will the CRA's be held accountable in the same way the banks are being held?

I feel your pain and it is tedious and can be extremely frustrating to try and get information corrected at the credit reporting agencies. However, they are held accountable under the Fair Credit Reporting Act. If there are errors in your credit reports, you have the right to dispute the information and the credit reporting agencies MUST investigate the error and either correct it or remove it.

Also, I think there is a lot of confusion on this issue - the credit reporting agencies don't determine our financial worth. They compile data that your lenders report to them but none of that data contains any of your income. A lender on the other hand will take into account your credit report, your scores and your income to determine whether or not they want to accept the risk of extending a loan.

And you are right, the highly marketed 'free' ads are owned by Experian. The problem is that this site isn't the federally mandated site that gives consumers access to their free annual credit reports. That website is www.annualcreditreport.com. Of course, you'll still get the suggestive selling to upgrade for to a report with a score but you can decline that offer and get your report without paying a penny.

Why is one's credit score reduced simply by carrying a high balance on a credit card (AS LONG AS THE ACCOUNT HOLDER IS FULLY MEETING AND COMPLYING WITH THE CREDIT CARD ACCT CONTRACT AGREEMENTS)??? A credit card contract is a predetermined agreement between a lending institution and a borrower. The loan institution assesses a borrower's financial status/history to determine the loan conditions they are willing to extend (credit limit, payment terms, interest rate, etc.)...again, this is an agreement between the lender and the borrower - NO ONE ELSE. As long as the borrower is fully meeting the contract agreements, there should be no penalties applied by an outside agency (equifax, experian, etc.) simply based on the manner by which a borrower chooses to use the credit extended to him/her. Bear in mind, these agencies are in no way affiliated or tied to the loan contract, so what empowers them to lower an individual's credit score, giving the perception to other prospective lenders that that individual is a higher risk. You don't see auto insurance companies analyzing how close one drives to posted speed limits and increasing insurance rates for those that drive closer to the posted limit than other drivers!? They don't increase rates until an individual breaks the speed limit or violates some other law and is ticketed...
If you ask me, the new FICO 08 changes are backwards...they are willing to overlook cases where borrowers have missed payments or collections hanging over their head, and will NOT lower their credit score based on this PROOF of broken financial contract agreements....However, the new FICO 08 changes do support penalizing a credit score for someone that carries a credit card balance close to the credit card limit, even though they have managed their credit account in full compliance with the lender agreements.
Where is the fairness and logic in this, and why do these agencies have this much authority and influence on everyday citizens???
I think one of the problems is there is not an agency currently in place to support & represent borrowers similar to the way Equifax, Experian, etc. supports lenders. There needs to be a formal credit support institution for borrowers to serve as a "check & balance" to the credit score agencies supporting lenders. An institution such as this would help level the playing field and perhaps assist and increase efficiency in resolving credit history discrepancies.
Keep in mind, the average citizen and borrower is the reason lenders and credit score agencies have jobs...to serve us. Situations like this help me understand why more and more citizens are pulling out and closing their bank accounts...
Can someone shed some light on these comments please?

Why is one's credit score reduced simply by carrying a high balance on a credit card (AS LONG AS THE ACCOUNT HOLDER IS FULLY MEETING AND COMPLYING WITH THE CREDIT CARD ACCT CONTRACT AGREEMENTS)??? A credit card contract is a predetermined agreement between a lending institution and a borrower. The loan institution assesses a borrower's financial status/history to determine the loan conditions they are willing to extend (credit limit, payment terms, interest rate, etc.)...again, this is an agreement between the lender and the borrower - NO ONE ELSE. As long as the borrower is fully meeting the contract agreements, there should be no penalties applied by an outside agency (equifax, experian, etc.) simply based on the manner by which a borrower chooses to use the credit extended to him/her.

I think you're misunderstanding the roles here. The reporting agencies only collect the data that your lenders CHOOSE to report to them. Credit reporting is a completely voluntary system and there's a reason why your lenders CHOOSE to report this data. When you apply for a loan, the lender (any lender... credit card companies, auto lenders, mortgage lenders, etc.) can BUY this data from the bureaus to see a consumers entire credit profile. And remember, these lenders can't BUY this data unless you give them permission - which you do when you go to them and apply or ask for a loan. Lenders use this data (your previous credit patterns) to determine whether or not they're willing to take the risk in extending you a loan when you apply for one. If you're maxed out on your credit cards - it's risky - period. They want to see how you've managed your credit in the past before they'll take the unknown risk of granting you credit for the future. The credit bureaus are nothing more than data collectors. They collect the data that YOUR lenders report to them for the sole purpose of ALL lenders being able to see what kind of customer you are with other lenders. You don't have to agree with this, I'm just explaining the system here.

If you ask me, the new FICO 08 changes are backwards...they are willing to overlook cases where borrowers have missed payments or collections hanging over their head, and will NOT lower their credit score based on this PROOF of broken financial contract agreements....However, the new FICO 08 changes do support penalizing a credit score for someone that carries a credit card balance close to the credit card limit, even though they have managed their credit account in full compliance with the lender agreements.
Where is the fairness and logic in this, and why do these agencies have this much authority and influence on everyday citizens???

First, FICO 08 does not overlook missed payments or collections. Your facts are wrong here. FICO 08 will ignore collections under $100. And missed payments are a huge deal. Even more than the maxed out credit cards. So , missed and late payments still hurt and any collections over $100 still hurt.

Second, even the OLD FICO score model penalized you for carrying high credit card balances. In fact, ALL credit scores (not just FICO) penalize you for this. It's been proven statistically (repeatedly) that consumers that are close to maxing out their credit are more likely to DEFAULT on that account. It's a question of risk. These statistical figures are based on MILLIONS of consumer credit files. They don't just make these numbers up - they study the data and the patterns of the way millions of consumers manage their credit. If you want good credit scores, don't max out your cards, don't live beyond your means, don't charge what you can't afford to pay back at the end of the month. Believe it or not, there is a way to beat the credit card companies at their own game... if you only charge what you can afford to pay back at the end of the month, then you won't be paying interest, you won't be accumulating debt (and lowering your credit scores). And just to be clear, I'm not defending the credit scores, the lenders or the bureaus. I'm in the same boat as millions of other consumers. I've had four of my credit card companies hike my interest rates and two of them also lowered my credit limits. ONE of them has even notified me that they're closing my account due to (this is a good one) my address not being locally with the credit union. Did it tick me off? Yes. Is there anything I can do about it? Well, I can't make them reopen the account, raise my limits or lower my interest rates.. but i can use the knowledge that I have to work the system to my advantage by not closing the accounts because I'm ticked off at the bank (that only hurts me, not the bank), and by keeping the accounts active by only charging what I can afford to pay off at the end of the month. I know that in order to maintain my scores, I need to watch my revolving utilization and keep it as low as I possibly can.

And while I'm writing a book here, it's also important to point out that the FICO score isn't the ONLY score that lenders are using. In fact, many lenders build their own CUSTOM models internally based on their current customer's data and credit patterns to determine risk.

The bottom line is that consumers need to take the time and educate themselves on HOW credit works, WHAT goes into the scores, and get involved. The more you know, the more you'll understand HOW the system works so that you can use this knowledge to your advantage.

I understand the credit agencies collect individual credit data for lenders...However, agencies go beyond "data collecting" by manipulating an individual's credit scores based on statistical and risk assessment data rather than that particular individual's actual proven credit performance. If "credit bureaus were nothing more than data collectors", they would not manipulate credit scores based on the data collected...For example, if I carry a high balance on a card, but I have NEVER defaulted on my loan agreements, my credit score should not be penalized, however, this is not the case. My score should not be reduced until I have demonstrated that I cannot properly manage my extended credit, by missing a payment, etc., etc. There should be a better way to more accurately assess an individual's credit score based on what that individual "actually did" (objective based on the individual's actual history), rather than what the credit agencies perceive the individual is "likely to do" (subjective based on statistics) based on data such as the balance carried on a card. In other words, if I've defaulted on a loan agreement, then yes, I should be considered higher risk, and my credit score should reflect so (objective evidence of proven default history). However, if I am meeting all loan agreements and have no history of default, then credit agencies should not be empowered to reduce my credit score for this. In this case, my credit score should reflect that I have effectively managed my credit without default, regardless of what balance I choose to carry on a card. It is the individual lenders place to determine risk and make loan decisions, without INFLUENCE by credit agencies. The credit agencies should only use the objective (or measurable) aspects of an individuals credit history and stay away from the subjective aspects when determining one's credit score. The lenders are the only appropriate institutions to delve into determining the risk aspects of an individual's credit history.

As part of FICO 08, why do collections under $100 not carry the same negative influence as before? This is an example of credit default, regardless of the amount...why does the amount matter? A default is a default...if someone defaults $50, they can default $5000. This is very confusing to me as a consumer that makes efforts not to default for any amount, and appears to me to be another example of the credit agencies not maintaining an objective approach to determining credit scores...

Since credit agencies do manipulate credit scores based on factors such as balances carried on loans, why don't they provide measurable guidelines that would allow individuals to accurately assess & manage their own credit scores? For example, if I have a credit card limit of $10,000, what is the maximum balance I can carry without having my credit score reduced? To my knowledge, no such data is available to me. As a consumer, I need this kind of information to understand how the system works so that I can use it to my advantage. The methods used by credit agencies to determine credit scores should be transparant, easy to understand, and available to the general public. This is more important than ever today, given todays economic conditions.

This message was edited 1 time. Last update was at 09/09/2009

The answer to all of your questions about "why" in a credit score is simple....because it's predictive. Arguing the merits of why things count and why things don't make sense is a waste of time. If something has value in a scoring model then FICO is going to use it and weigh it based on how valuable it is. I'd also suggest spending some time reading through our educational materials. You'll end up with a better understanding of how things work.

Hi BB - An article in yesterdays news talks about the FICO 08 score changes. It sheds some light on the minor collections being ignored if you're interested. In the article they use an example of a library fine being turned over to collections and I thought you might find it an interesting read: FICO alters its formula for credit scores

"The answer to all of your questions about "why" in a credit score is simple....because it's predictive."

In other words, if I carry a high balance on a credit card, my credit score is penalized/reduced by the credit agencies based on predictive analysis that I "might" default, when in fact, I have not defaulted. Credit agencies can predict all day long, but my score should not be penalized until I have demonstrated a reason to do so...

"Arguing the merits of why things count and why things don't make sense is a waste of time."

Shame on me for wasting your time., and who do I think I am to question the practices of the credit agencies...To you, and the organization you represent, my inquiries may be a waste of time... For me, attempting to acquire knowledge and answers on credit scoring issues is time well spent. CREDIT SCORES AFFECT PEOPLE'S LIVES IN MANY WAYS, so it is of the utmost importance that these scores are calculated accurately, fairly, and objectively, and that the score reflects the individual's actual credit performance rather than their "predicted" performance...Is it too much to ask to be judged on what one actually does (objective) rather than what someone thinks one might do (predictive)? This is what credit agencies are doing...

Credit agencies should only report facts that are supported by evidence to lenders, and leave the "predicting" in the hands of the lenders.

Hi bb - I think that you might have taken that comment personally when it wasn't intended to be an attack. It's absolutely important to question things - it's how we learn!

However, arguing back and forth isn't conducive to the ultimate goal: to educate and empower you with the answers and knowledge you need in order to understand and manage your credit and credit scores to your advantage. And while we can't change the way the system works, we can show you how to work it to your advantage.

If your scores are suffering solely because you're carrying high balances on your revolving credit card accounts, then you can quickly improve your scores significantly by paying those balances down as much as you possibly can afford to do so. The lower your revolving utilization, the higher the score.

I think it's also important to point out that the FICO scoring model is designed to predict how likely a consumer is to go delinquent. Nothing more, nothing less. So the answer to your question of why the scores penalize consumers for being over extended on their revolving credit card accounts is simply put (as John stated), "because it is predictive". And again, lenders are not required to use these scores. They do so because they choose to and it helps them keep their losses down. It's a business decision on their part.

Disagreeing that being over utilized on your credit card accounts should not be considered a risk by lenders isn't going to change that the credit scoring models do in fact, consider this information. Based on the statistical data of millions of consumer credit files, those that were close to maxing out on their credit cards demonstrated a higher risk of defaulting on their accounts than those consumers that were not over utilized.

I hope you find this helpful,
Deanna