We have all heard the expression “sex sells”, but what about “credit sells”?
In today’s financial world many individuals feel their character coming into question when that magic number drops below a 720. There is even a dating site created for eligible bachelors/bachelorettes seeking their ideal financially compatible partner (www.creditscoredating.com). There have been a variety of surveys that show few individuals want to admit that their credit score is anything less than, well, excellent.
So what is it behind this misconception that less than perfect credit equals a less than dependable individual or business?
Before the use of credit and the credit reporting laws, lenders judged creditworthiness on a case by case basis – this opened the door to bias and penalization based on race, marital status, or in some cases simply because the underwriter did not like the borrower. The credit score system has been around for about 50 years, its purpose was to eliminate the discriminatory landscape of lending and develop an industry that focuses on an individual’s payment history and financial standing.
Until the early 1990’s credit was a language strictly used by lenders, little was known by consumers about this perplexing three-digit number. It was around that time that mortgage lenders, Fannie Mae and Freddie Mac, began using credit scores to determine what loans to offer and on what terms. Eventually, banks and mortgage brokers followed the lead and began using credit profiles to determine which borrower to turn down or approve and what pricing would be correct for the loan. To this day FICO, is the most popular of scoring systems for banks and lenders and they offer many different scoring models. There are over 50 different FICO score versions sold for the purpose of defining risk.
In 2003, the federal government passed legislation called, The Fair and Accurate Credit Transactions Act, which required the major credit bureaus – TransUnion, Experian, and Equifax – to make reports accessible to consumers. This is where the big “credit sells” marketing began – since the bureaus were no longer able to keep credit a secret they decided to profit from it. More and more credit card companies are now jumping on the bandwagon offering “free” credit scores to consumers as a marketing approach to procure more applicants. Companies use credit as a lure because they know that many consumers see it as a measure of self-worth and character.
Despite the ongoing legislation to make credit “easier” to understand, the process by which scores are determined is still a mystery to many. There are many inconsistencies within credit reporting, and the bureaus that are responsible for reporting our financial information are reaped with inaccurate information and unfair practices. We live in a society fixated on scoring people – whether it is test scores, credit scores, or personality test scores – today’s age of computation feels it necessary to measure people based on predictive scoring models that are not objective and are do not dictate whether you are of good character or not.
In today’s internet information overload, credit scores and massive information about them is available, but that does not mean the majority of the information is accurate and relates to every credit profile. It takes a seasoned Credit Expert to help individuals and lenders accurately fit the pieces together. To this day legislatures are working towards correcting the inaccuracies and unfair nature of the credit industry – to give consumers a little more understanding, if not, more control over whether they are approved or denied for a loan and why. If you are looking to obtain a loan or financing anytime in your future and are concerned about your creditworthiness it is important to review the “right” FICO score reports. If you see inconsistencies do not hesitate to consult with one of our Certified Credit Experts that can provide you with objective information about your standing.