According To Mike

Our credit system is broken. Looking at it from a high-level, the system is designed to get you into some debt and keep you there. Don't be fooled by agencies talking about helping you get out of debt and monitor your debt - the credit card companies want your interest, and in my opinion, are in bed with the CRAs ("Consumer Reporting Agencies") as I've noticed some interesting patterns.

Guilty before proven innocent, we'll raise your score "some day"

We are penalized for the following:

• Not having any credit history (you haven't made any mistakes yet, yet you're guilty before proven innocent)
• Bankruptcy and related offenses; yes, this obviously makes sense.
• Not having enough accounts opened (aren't you encouraging me to take more credit out then?)
• Not having accounts opened long enough (again, guilty before proven innocent)
• Applying for loans or other credit lines - even if you are simply shopping for rates. You are actually penalized for this. That is like having to pay some sort of tax for browsing for the best deal on milk at your grocery store!
• Paying off debts and collections - you paid them off, yet they will stay on there for up to seven years. You will not be able to live life to its fullest [financially] for a significant portion of your adult life due to this. Wouldn't you think one year is fair enough to prove you've resolved your finance issues?
• Closing your accounts. If you close an account (read: you cannot take out credit from it) why does that factor in to anything?

We are rewarded for having:

• A healthy amount of credit open under our name, somewhat regardless of usage (you do get a little ding for having high balance:limit ratio, which does make sense, but not dinged as much as one would think)
• A variety of accounts, open for long periods of time. Why would you want to close out an account so it can't be stolen by an identity thief, or incur some hidden fee that snowballs into some penalty? Even FICO says "don't close unused cards" and that closing your accounts will still impact your score. Once you pay off a card, why are you not rewarded for closing it out and shutting off the ability to incur more debt on that again?

Why do these things matter?

Instead of judging on a few common sense items that make sense before giving out a line of credit, like factoring in debt-to-income ratio and looking at the balance-to-limit numbers, there are other stupid things being examined like closed accounts and shopping for loans, things that are not taking out more credit in your name. These agencies should be obligated only to look at what you credit you can take out in your name, not what you've been looking for. You actually wind up doing yourself a disservice for a few months (or whenever it is able to "fix itself") just shopping around to see if you can get a better rate on a car or home loan. Where is the sense in that?

If there are only four main agencies, what are these?

According to Wikipedia, there are four primary CRAs:

• FICO
• Experian
• Equifax
• TransUnion

As well as some "other" agencies, below, which don't seem to get used often. For the purposes of this article, let's just ignore them, as the big ones do an excellent job of making the system work against us already.

• Innovis
• PRBC
• TeleCheck

I'll admit first thing, I'm not well-versed in every aspect of the financial system. We all know we're typically we're all judged by the big four though.

Upon closer inspection, after applying for loans and such over the years, and getting credit reports online, I am confused as I am getting different scores from multiple sub-institutions of the big four.  You would expect four numbers, at the most.

I keep a spreadsheet of the bureaus and my scores by date. As of writing this, I have results from nine different systems, each of which gives me a different number than the other at any given time (so it appears) - the numbers are the lower and upper ranges (if they were easy to find)

• TransUnion:
  • TransUnion (300-850) [via Credit Karma]
  • TransUnion VantageScore (500-990) [via Credit Karma]
  • TUC/FICO Classic 2004 (350-850)
  • TUC/FICO Classic 98
• Experian:
  • Experian (300-850)
  • Experian PLUS (330-830)
  • Experian FICO-II
  • Experian Scorex Plus (300-900)
• Equifax:
  • Equifax/Beacon 5.0 (300-850)

If you've improved your score, those changes need to propagate to all of these one-offs, or you could still wind up being denied that application or being subject to higher rates due to a poor credit score.

For future reference, I like to use the self-coined term "Option Obfuscation" - where companies and organizations create one-offs as "options" to the public, usually nearly identical to each other, but with the main goal of making them incompatible for comparison, price matching, etc.

I heard that my credit score can affect my employment eligibility?

Yes, a couple years back a friend of mine informed me that the company he was applying for ran a credit check on him. Why? Unless you are handling money and there is some risk of you making a mistake with company funds, how does your own personal finance history, mistakes and all, make any difference to an employer? Other than someone in debt/with poor credit might be more motivated to fix their situation? (Which is highly unlikely that they were using it for that reason. That's more of a little joke I like to tell myself.)

Since he told me about that I've heard related stories as well. Whatever happened to equal opportunity? According to the EEOC, which is the governing and enforcing body of equal employment opportunity, there is nothing on this list about that. Which means that they aren't outside of their legal boundaries to do that. In my opinion, since they aren't legally able to discriminate against you on one of those items, I believe they're finding new ones to disqualify certain applicants, or figure out more background on you than the easy items (such as the list above.) I have a page about hiring practices as well, as I have seem some violations in my time that are worth noting.

In times of need, either way you lose.

Common advice for homeowners looking to get assitance from the government (or even their bank) is to miss a couple payments, and then you look more qualified due to "hardships" for these programs. However, as mentioned here, even going 30 days past due can affect your score for quite some time. Once again, where the big banks get an easy bailout, the rest of us get long-standing red marks on our credit.

What's up on my current report?

My oldest account is over 8 years old. "Most FICO High Achievers" opened their account 19 years ago, on average. Really? 19 years ago? Last I checked, I can't open an account at 11 years old. The reporting system doesn't appear to factor in your age.

Suggestions?

1. Standardize reporting across all institutions. Stop with individual numbers and metrics. It doesn't help consumers, and you are a Consumer Reporting Agency, right? Perhaps even reduce the number of institutions. Do we really need four?
2. Third party agencies can only see open lines of credit and accounts. Period. Your closed accounts, your loan shopping, your credit card applications - those are your business and only yours.
3. Your score should be weighted only based on current balance:limit ratio, possibly debt:income ratio (maybe I'll give you that) and recent debts that may have been reported.
4. Time to clear negative information on your report should be reduced. It should not show debts from seven years ago. You were young, you made mistakes - you went into debt, you co-signed for a boyfriend or girlfriend. That is not you now. CRAs should only judge only based on the last year, that isn't too harsh, and shows a solid year of responsibility.
5. Everything should factor in the age you can legally obtain credit, 18, which in my opinion doesn't seem to be weighed appropriately. I assume it must be factored in, but it doesn't really seem to help out. See my comment above. I am being judged against people probably 20 years older than I am. If there is any sort of bell curve or related grading system going on, that makes me look a lot worse.
6. Provide tools such as a credit calculator that is accurate enough to figure out how and when your score can be impacted by adding/removing/reducing debts, adding credit inquiries (which in theory should not impact score if #2 and #3 above are implemented, so that should be moot) and any other metrics worth adding in to calculate how your score is impacted.

Who am I?

I am "Joe Citizen" and I have been drinking the Kool-Aid like everyone else. This blog is meant to be a collection of ideas, not so much rants, that I think would restructure the system to work for us in an efficient and not-as-bonecrushing manner.

I am going to apologize, again, because this winds up being a bit more of a rant than anything else. It also gets a little off topic, and I plan on publishing dedicated pages for each sub-topic that deserves one. When I get time to write in a somewhat logical manner, I will try to attack each one. Now back to the original goal here...

First off, I'm not a deadbeat.

In my day job, my "career path" has me setup to make the appropriate amount of money to be a sole benefactor in a home, if needed. I have spent the past ten years working for this large, successful, hugely profitable corporation. My stock options from being hired ten years ago expired with a net value of zero. In a normally growing economy and stock market, those would have been worth probably $15,000 (before taxes) over the course of that time. I got zero.

Not only do I have the "career" but I have two side businesses. Because of the economy, I've had to adjust my rates to be competitive. For some of my clients, I am their Jack of All Trades, I am their primary technical resource. Without me, they'd have a less-skilled person managing the work, possibly costing them business and their time.

I am not bragging, I am explaining the situation. I am a very skilled and competent worker. Getting work is not difficult for me. Sometimes I interview for contracts or jobs with no intention on actually taking them, or not caring about the outcome. Most of the time, I am offered the position. However, due to the market rates, the influx of college-educated workers without job opportunities, and the obsession with outsourcing, I've had to make those rate concessions, as something is better than nothing.

And it begins...

A couple years ago I had money in the bank, and I was in the right position to move on to the next stage in the "American Dream" - home ownership. After shopping around, I found a place which was in my price range, it appraised higher than I purchased it for instantly, everything seemed great. Fast forward to now, and every day I wake up to the harsh reality.

The home I reside in, which I did not "overextend" myself with originally, is worth approximately 64% of it's value right now (if I was even able to sell it for that.) It would take years of record property gains to be able to even break even. Our Parents provide their opinion and keep telling us that "property values always go up" - which has been the case their entire lives and for the most part, my entire life as well. However, my situation right now is being stuck in a condo that was supposed to be a short-term equity building investment to eventually jump off to a detached home, and I see no end in sight. The same houses that I couldn't afford before are now available at the price I paid for my condo. I don't have an amazing amount of money available to me to sell this one for a loss, or pick up a second property and default on this one. At the moment, I have no options.

Being the little guy, I don't get any sort of amazing "bailout" packages from the government. In fact, the more money I make on my side jobs, the more the IRS takes from me. Are they doing any extra work for me? No. I am the one putting in the effort, they are doing the exact same thing for me, regardless of my extra-cirricular income. No matter how hard I work, they will take 30%+ of whatever I make. This is bullshit in it's purest form. They make enough from me as an individual from my day job, anything extra I am able to make should be able to go towards my own life, not to line the pockets of politicians who spend months wasting time, money and don't act on behalf of my interests.

What's the problem?

Anyone in generation X or Y has lived in an exciting time. Technology and the Internet has advanced and changed how we get information, how we communicate, and is constantly changing and growing. One could say it's a great time to be alive.

However, in the background of all of this has been an era of extreme corruption. The stock market isn't doing anything amazing. The government gave a free pass to multiple industries that were too greedy but "too big to fail." Home foreclosures are through the roof. People are maxing out their credit cards. Nobody at the Joe Citizen level seems to be able to get a break.

We are all subject to the laws, rules, or otherwise unspoken truths of living in the United States of America. While there are people who may disagree or cite some loopholes, for all intents and purposes, we're all part of the same system.

This system demands that:

• We all pay taxes (income, property, and in most states, sales) - I've published my thoughts on taxation here.
• We all are subject to the four "credit bereaus" (now coined "Consumer Reporting Agency") - see my article here.
• We are given the choice to vote
  • Democracy is "majority rule" - right? Wrong. Quick example? The presidential race is won through the Electoral College, not through the majority of the popular vote.
  • Once a politician is elected, there is no obligation to deliver on the promises during the campaign. Add to that the pointless nature of the Two-party system, and you have the recipe for an inefficient, irresponsible and unrepresentative government.
  • Want more of my thoughts about our elected officials?

What can we do?

Past attempts to "lash out" at the government and the system have proven to be ineffective. Remember Joseph Stack, the guy who flew the plane into the IRS building? He was in the headlines for a few days, had a shockingly similar manifesto to the world explaining how he's been a slave to the system and has done everything he can personally to advance and can't seem to catch a break. He was able to get national coverage and strike a literal hit to the IRS - but nothing changed. The only people who remember that event now are his family and friends and people like me, and some employees of the IRS who have no decision-making powers either.

We do have the constitutionally protected right to protest. When's the last time a protest changed anything?

We could stop paying taxes, and give ourselves a bit of a financial break. Until the IRS catches up to us, and we wind up with large fines or jail time. Even celebrities can't escape that.

We could write our congressman or senator. Again, when was the last time that was able to change anything?

We do have some people in government who try to push the envelope and push for accountability and still seem to represent Joe Citizen. For example, this video is amazing - Alan Grayson asks hard questions point blank, gets a bunch of bullshit back, and nothing changes. What happened to Alan Grayson this last election? He was voted out.

What CAN we do?

Well, currently I'm tapped out of ideas. If an actual elected representative who exposes corruption directly to his counterparts, to the public, and is even sitting on Youtube for anyone in the country to see can't make anything stick, I don't have any sensible plans right now. Even illegal, immoral, insane or illogical ideas won't even make a difference, in my opinion.

There is simply no accountability when it gets to that level, all of us are just ants going about our lives - which for the most part, typically just "works" - but when you hit these hard times and your options are limited, that's when we need this power we've elected to represent our interests to enact certain things to help us out. I consider our taxes are a form of insurance, not just funding, for anything current and/or future that we as the people who elect the representatives who decide how the money gets routed and the people providing the funds decide on.

Currently I consider the government, at the macro level, to be in violation of the "taxation without representation" statement. Sure, Obama has passed a lot of acts, laws, etc. Probably more than Bush did in his eight years. When it comes to Joe Citizen, however, how does this affect most of us?

• Have we seen anything cut that would make a significant impact to our tax bottom line?
• Have we seen equivalent bailouts for homeowners who are horribly underwater? Yeah, they tried putting some plans in place, but hardly anyone has benefited from it. You want to make a difference? Instead of giving trillions in bailouts to corrupt banks, how about you force price-fix everyone's mortgage and normalize the market. The banks won't have to face loan defaults, as people would be able to afford, buy and sell property like normal, not on inflated prices.

In my opinion, they threw money at the wrong places. Of course, I am not an economist, there are PhD level scholars and scientific approaches to how to fix these issues, and they may have made what they considered to be the best choice. I believe it was the best choice with their own interests (or corporate/"big boy" interests) in mind and figuring out a way to keep them protected while selling us on why this is a "good thing."