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.

Product instructions must be tailored for the product you have purchased.

In an effort to cut costs, companies have began to make thick instruction manuals that cover multiple products and multiple languages. This is confusing to the consumer with the fine print, the one-off models being different from one another, etc.

It is understood that companies want to keep their product costs down. I don't like to share an opinion without some suggestions. Here's a couple that come to mind pretty quickly:

• The manuals would be much thinner (and cheaper) if you only had one product and one language. While the combination of different manuals (products x languages) being produced goes up, the size of the manuals goes down. I'm sure that the increase in can't be detrimental if you evaluate it. It may increase the price of the product slightly, but higher value products should not be impacted that much. However, I am not an expert in the paper manual field though, and could be totally wrong.
• Distribute the manuals in PDF format on a CD, or give a link to them online. Let the consumer decide how they want to print/view it (unless it is a manual of something that requires an offline copy to get online - no chicken and egg scenario, please.) This will also allow them to search the manual digitally which is an extra benefit.

Opt-ins should be required for everything, not assumed.

Signing up for something does not entitle a company to send you email later on, unless you opt-in. Most companies seem to have opt-in policies, but more often than not, I find myself getting email from places that I never said "yes you can send me updates whenever you want"

The only acceptable automatic opt-in would be for something that makes sense. Something that may have a security or safety flaw or something. Otherwise,  it should be a requirement that even "product update" emails are required to be opt-in.

I do not have a problem with companies having the checkbox checked for you by default on the signup form, but if you uncheck it, you can rest assured you will not receive any further emails from the company other than the relevant ones.