What determines where you live? Where you can work? What you can afford? While your personal choices are important, the credit bureaus help answer these questions too. And there’s a hidden truth to their practices you need to know.
If lenders want to know if you’re trustworthy, they don’t use your testimony. They use your credit score, which the credit bureaus determine.
And credit bureaus aren’t interested in you as a client. They’re interested in you as a product. And like any product, they can sell that product to the highest bidder.
It may sound strange, but information about you has value. This has been the case for over a century, when Equifax, the earliest of the three essential credit bureaus, emerged after the Civil War in 1899 – then known as the Retail Credit Company. The credit bureaus originally collected information not just from stores and shopkeepers, but information over lawsuits, divorces, and even newspaper clippings that can be traced back to Abraham Lincoln (these practices are said to have spawned ‘mass surveillance’).
Equifax, Experian, and TransUnion are the three essential games in town when it comes to credit, and by extension, debt. However, they are data brokers first and foremost. Credit bureaus don’t actually tally your credit scores. The credit bureaus, also know as nationwide credit reporting agencies (or NCRA’s), on the other hand, are banks of information. And information is the only thing they deposit.
For the information they supply, they’re handsomely rewarded. Experian tallied $4.5 billion in revenue for the 2016 calendar year. TransUnion earned $1.7 billion, and Equifax raked in $3.1 billion in revenue for 2016.
Not much has changed about credit since the days of six shooters and saloons.
In fact, the digital age offers a lot more information to sell. Experian can sell your health inquiries, including information about treatments and diseases you have. The same company also sells lists of names of expectant parents, which are updated weekly. Equifax can sell your “salary and pay stub information”.
Looking out for Number One – It’s Not You
Despite the word “bureau” associated with the credit reporting agencies, they are not government entities. They are independently owned, and collect billions of dollars per year.
Like any powerful corporation, the credit reporting agencies own their own squad of lobbyists, or special interest groups. In 2006, their lobbyists tried to get a House bill through Congress that would allow the NCSA’s to keep consumers from locking their own credit reports in the event of identity theft.
The NCSA’s have an obvious incentive to make it harder for consumers to lock their own credit reports- credit agencies don’t make money if Americans spend less. Locking out a credit report means the agencies can’t solicit information either.
In addition, the topic of identity theft is not irrelevant in the context of credit agencies. In 2012, Experian sold 200 million social security numbers to identity thief, Hieu Minh Ngo. Their credit bureau brothers, Equifax and Transunion, have historically stored credit inquiries on memory areas that hackers have been able to easily breach. It’s probably no wonder then, that Americans become victims of identity fraud every 2 seconds. In the digital age where social media giants like Facebook can target emotionally insecure minors for advertisers, the ethics of data practices raise serious concerns about how much is too much.
Unfortunately the credit bureaus don’t answer to you. Unless you’re part of the top 1 percent.
The Woman That Equifax Believed Was Dead
For the most part, these are sins of omission at best. None of the listed practices are illegal.
But that’s because we haven’t gotten there yet.
Credit agencies have a V.I.P list of celebrities, politicians, and judges whose errors are fixed immediately. As the New York Times noted in 2011:
The three major agencies, Equifax, Experian and TransUnion, keep a V.I.P. list of sorts, according to consumer lawyers and legal documents, consisting of celebrities, politicians, judges and other influential people. Those on the list — and they may not even realize they are on it — get special help from workers in the United States in fixing mistakes on their credit reports. Any errors are usually corrected immediately, one lawyer said.
Average Americans, on the other hand are “herded into a largely automated system”. The difficult part about being part of an automated system is that potential errors can be found in 19.2 percent of all credit reports according to The Consumer Data Industry Association.
That’s one in five consumers with a mistake on their credit report.
That one mistake can be the difference between being able to afford an auto loan over getting saddled with outrageous rates.
And these mistakes happen often. For example, debt collectors will sometimes slap medical debts (which affects 43 million Americans) on your credit reports before you’ve been billed by your doctor -a consequence of a flawed, overly complex system that can cost you $9,000 in medical bills just for slipping and falling. Worse yet, bureaus over-penalize consumers with medical debt. As a result, New York’s Attorney General, Eric Schneiderman, got the credit bureaus to change the way medical bills affect your credit score in 2015 (they now have to wait 180 days before listing medical debt on your credit report).
Fixing certain methods is not the same as fixing the system, however. Just ask Judy Johnson, who had good credit, and successfully sued one of the credit bureaus because they mistook her for Judith Johnson, who had bad credit.
Or Kimberly Haman, who sued Equifax in 2014 when she couldn’t refinance her mortgage because the bureau reported she was dead.
Or Julie Miller, who received $18.6 million in restitution when a federal jury found Equifax guilty for refusing to delete dozens of false collection items.
How this happens is somewhat complicated. One way for credit bureaus to forego their responsibilities is to stall. According to the Consumer Financial Protection Bureau (CFPB), Equifax, Experian, and Transunion are the companies slowest to help at responding to consumer complaints over student debt. That’s not insignificant since Americans owe over $1.4 trillion in student loan debt spread out over 44 million Americans. To emphasize how extensive this problem is, Americans over 60 are $66.7 billion in student loan debt because the elderly are taking out loans to help their children and grandchildren pay for college.
But credit bureaus aren’t paid to be concerned about a debt crisis.
They can also ensure that their bottom line stays priority number one either deliberately or through laziness. The Consumer Financial Protection Bureau was paid $23 million in fines by Equifax and Transunion after they were found guilty of providing false scores. If you can stall by simply not answering the phone, even better. Equifax paid $2.5 million in fines when they delayed phone calls to customers inquiring about their credit.
The credit bureaus establish the rules of the game. And this game determines your financial trustworthiness. Are you prepared to play?
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