[HN Gopher] The credit score system is broken, critics say
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The credit score system is broken, critics say
Author : LinuxBender
Score : 27 points
Date : 2022-08-14 16:32 UTC (6 hours ago)
(HTM) web link (lite.cnn.com)
(TXT) w3m dump (lite.cnn.com)
| josephcsible wrote:
| Distinguish the concept of a credit score system with the
| particular implementation of one used in the US today. If your
| friend Bob, who's never asked to borrow money from you before,
| asked to borrow $100 from you today and promised he'd pay it back
| in a week, what would your answer be? Would your answer change if
| you knew that last month, he said the same thing to 6 of his
| other friends and never paid any of them back? If that would make
| you tell him no, then you do support the concept of a credit
| score system. There's definitely a lot of problems with our
| current credit score system, but it's way less bad than not
| having one at all, in a world where almost everyone needs to
| borrow money to be able to buy a house or car.
| p49k wrote:
| There's a difference between credit scoring and credit
| reporting.
|
| Credit scoring refers to the act of reducing the entirety of
| one's credit history to a single number using an algorithm.
|
| Few people are opposed to credit histories being available to
| potential lenders. However many find the scoring system to be
| unnecessary and flawed. Lenders could just look at the actual
| credit history to make a decision.
| zxcvbn4038 wrote:
| I've done all of the things that all of the blogs suggest to keep
| a decent credit score, but my score is extremely volatile and
| bounces around in a 200 point range month to month which never
| made sense to me, but every avenue of complaint fell flat. Then
| about three years ago I got a rejection letter that said one of
| the credit bureaus had me categorized as someone likely to run up
| a good score then bust it out (I forget the term they used) - no
| history of me doing this but apparently that's my profile. So if
| I carry any balance on any card my score immediately drops 196
| points, if I pay it off the next month my score jumps 196 points.
| That sawtooth pattern has been the norm for about a decade. That
| doesn't match up with anything that I've read about so it seems
| the credit bureaus actually have a specific policy just for me.
| Maybe I'm living in the wrong neighborhood, or maybe I'm guilty
| by association with somebody, who really knows. It doesn't really
| stop me from doing anything, if I want a new credit line I just
| wait until the month when my score is up 196 points, but it might
| be a problem if I was ever in a situation where I could not wait
| 8 weeks - like if I'm buying a house or need a car.
| s1artibartfast wrote:
| Really interesting. Mine has been withing 5 or ten points for
| 10 years across many zipcodes. The only exception was when I
| let a bill go to collections and it dropped ~30 pts and slowly
| recover over a year. Could it have to do with your % credit
| utilization when you leave a run a balance. If you up your CC
| limit to 20x your balance, your issue may go away.
| Cypher wrote:
| dangus wrote:
| I don't know that the article did a great job making its case
| beyond using dramatic language.
|
| I'm sure a non-zero number of errors are expected in any system
| like this that depends on various institutions reporting to the
| credit bureaus on the status of payments.
|
| Numbers of affected people thrown around in the article are in
| the thousands to hundreds of thousands.
|
| There are about 250 million adults in the USA. So, if 300,000
| have some kind of error in their credit score, that's a 1.2%
| error rate, and Equifax has since corrected that particular
| error.
|
| 700,000 made complaints to the CFPB, and about 60% of those
| related to scores, so about 420,000. So, this represents less
| than 2 percent of adult Americans reporting an issue with their
| credit scores.
|
| I am sure these error rates could be improved, but I'm not sure I
| would jump to the headline's conclusion that "the system is
| broken." It seems like the system is functioning, has some flaws,
| and that if the error rate improves even a little bit they're not
| all that far from what most people would describe as an
| acceptable error rate.
| Mountain_Skies wrote:
| The error rate likely would drop if there were actual
| significant consequences for having created the errors in the
| first place. There are fines if a company refuses to correct
| errors after a "good faith" effort on the part of the consumer
| to challenge the error and people do win those cases, but the
| process is tedious and shouldn't put the burden on the
| consumer. Plus the fines are too small to matter in most
| situations. It's just another cost of doing business that is
| less than the cost of preventing the errors from occurring at
| the current rate.
| mlyle wrote:
| > and that if the error rate improves even a little bit they're
| not all that far from what most people would describe as an
| acceptable error rate.
|
| A 2% error rate is not super acceptable depending on the
| outcomes. IMO, the big issue: most of the cost of errors is
| externalized to random consumers.
|
| e.g. I ended up having to fight with multiple agencies as they
| shared information with each other. They were each, at one time
| or another when I was 18-22, utterly convinced that I was an
| alias of a 45 year old guy racking up medical debts a few
| states away (who happened to have transposed his SSN to give
| mine on a form once). I also received harassing calls from
| collectors that I couldn't identify who enjoyed mocking my
| predicament and not complying with statutory requirements to
| stop calling me. It's not very fun to be really excited about a
| girl, and after you take her home for the first time, to
| receive a call that plays on your answering machine mocking you
| for being a deadbeat.
|
| I was unable to access credit, which greatly complicated
| business travel, etc. For many years to come, ordinary
| transactions-- even buying a car with a cashier's check-- were
| complicated.
|
| It was an ongoing ordeal that lasted years, despite me having
| some degree of know-how on how to address it (but relatively
| little time to do so). It is an embarrassing ordeal to have to
| constantly have awkward discussion with bankers when this bad
| data happens to pop up and rear its ugly head again.
|
| And, I didn't end up making a CFPB complaint, because as angry
| as I was, I had other things to do-- so, I'm not included in
| your counts.
| lowkey wrote:
| Credit scores make more sense once you understand that they
| measure your potential profitability to a creditor, not your
| creditworthiness.
|
| That is why , for example, when you cancel a credit card your
| credit score goes down.
| colejohnson66 wrote:
| I agree; The credit score system is full of abuse. But, and I ask
| this genuinely, what're the other options?
|
| If I'm a bank that's has never heard of Joe Schmo (who's asking
| for a credit card), how do I know how much credit to give and at
| what interest rate? Sure, I could give them a very low limit and
| high interest rate, and both would improve over time, but if my
| competitor next door can extend $5k at 15% by looking at Joe's
| credit score, why would Joe come to me?
|
| The reason credit scores exist is because there's a market for
| that information, and the three companies took advantage of that.
| But because of that market, abuse had to be controlled, and
| Congress produced the FCRA. But even with that, there's still the
| mess we have today.
| hyperman1 wrote:
| Afaik in Belgium, and in most of th EU, there is a credit
| registry, managed by the governement. If you have too much
| debt, you get on a blacklist and won't get off until enough is
| paid back.
|
| While far from perfect, it seems a lot better than the USA
| system. But it requires a functioning ID system and some trust
| in the governement.
| resfirestar wrote:
| The idea of a government run debtor blacklist has been
| thoroughly demonized in America for the past decade through
| news stories about "social credit" in China. Maybe it works
| in Europe but if you wanted something similar in America it's
| going take a long time for people to forget that stuff, even
| if it was sensationalized.
| enlyth wrote:
| Because private companies such as Experian and Equifax have
| worked out so well. Surely they have had no instances of
| massive data breaches or anything that would impact
| millions of individuals adversely.
| Mountain_Skies wrote:
| The government threatened to cut people off from the water
| and sewage system if they didn't agree to pandemic rules. In
| the USA it is expected that any power the government achieves
| will eventually be abused to harm non-compliant citizens. In
| this case, if you don't agree to the whims of a bureaucrat,
| you lose access to credit. With the current system, that
| wasn't an option, but it's been made clear that any power
| they get their hands on, they will abuse. As long as that's
| the case, people will prefer the current broken system run by
| sociopathic corporations over one with the government in
| control.
| powerhour wrote:
| > The government threatened to cut people off from the
| water and sewage system if they didn't agree to pandemic
| rules.
|
| I did some searching and wasn't able to find any
| information about this. Do you remember where it happened
| or where you read about it?
| humanwhosits wrote:
| I'd argue that many people don't need credit _at all_ outside
| of a mortgage, which really should have a real investigation
| into your financial situation anyway.
| bediger4000 wrote:
| We used to have that. It was clubby and racist. If you went
| to church with the banker, you got a mortgage. If you didn't
| and your last name was uncommon or Slavic or something, you
| didn't get a mortgage.
| thatoneguy wrote:
| I'm not a fan...the credit score system kept me homeless during
| my freshman year of college even though I'd saved up enough money
| to pay a year's worth of rent.
| chadlavi wrote:
| It's not broken, it's doing exactly what it was created (quite
| recently btw) to do.
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