Controversies Regarding Credit Scores and Credit Reports
There are actually a number of controversies surrounding the use of credit scores and credit reports. Some states have proposed legislation to give consumers more protection. Some of the issues with credit scores that can hurt consumers:
Possible Errors in Credit Reports
Experts estimate that 79% of all credit reports contain errors. While most of these are innocuous errors regarding employment or past addresses, others contain negative marks that can lower your credit score. And, when there is an error in your credit report, you are presumed guilty. You, or a credit repair specialist working on your behalf, must initialize investigations into erroneous reportings. In some cases, inaccurate data has stayed on credit reports long enough to begin legal action.
Non-Credit Uses of Credit Scores
Credit scores are not just used for assessing credit. They are also more and more commonly used when you are seeking employment. This has become even more common, and more damaging during the economic downturn. Many worthy applicants are turned away because economic hardships have left them with less than perfect credit histories. At least seven states have put laws into place banning employers from pulling applicants credit reports or limiting what information employers can see.
Further, there is little evidence that credit scores and credit reports are a good indicator of employment performance. Representatives from TransUnion admitted that they had no figures correlating credit score and worth as an employee. A study done by the New York Times failed to find any relation between the two.
Complexity of Credit Scoring Process
The truth is, no one knows exactly how the credit scoring agencies arrive at your credit score. The work involves complex computations that are largely kept secret to avoid gaming the system. Credit reporting agencies have shared the how each section is weighted; however, the exact figures are kept secret. This has led many consumer advocates to criticize credit reporting agencies for a lack of transparency.
Variations Between Different Agency’s Scores
The version of your credit score that you can access is not the same one seen by potential creditors. And, your score can vary depending on which credit scoring agency is used. According to a report from the Consumer Financial Protection Bureau, one in five people are getting credit score reports that are significantly different from what retailers see. This can cause many consumers to pay a higher interest rate than they should because they fail to shop for a better deal on credit card interest rates. In other cases, consumers inadvertently lower their own scores by applying for loans that are beyond what they can qualify for.
In the end, the best thing you can do is arm yourself with knowledge. As you work toward home purchase plans, stick with accepted best practices for credit health. By keeping your eye on your financial health, you can find your way through this complex and sometimes unfair system.