March 1, 2000 Eloan offers FICO Scores to consumers. Sit back and watch Fair, Isaac try to explain why you are way too dumb to understand your own credit score. And is your final score all they are hiding?
March 1, 2000 Equifax Brags about denying telephone service based on information other than what appears in your credit report. Our claims that scores are based on nondisclosed data have been verified. Is the government listening?
Want to know more about "The Worlds 2nd Oldest Profession"? Read The Fortune Sellers : The Big Business of Selling and Buying Predictions by William Sherden.
In the real world credit scoring has already replaced your right to a fair civil trial. When you try to open a credit account, apply for a telephone, write a check or use a credit card, the evidence for and against you is weighed by a computer. If any business anywhere feels you have offended them that accusation is considered by the computer without regard to any protest or defense you can make. By collaborating with each other the consequences of a guilty verdict in this electronic courtroom have been made more severe than the same verdict in a legitimate trial.
Businesses have always been frustrated with courts because juries see things from the consumers point of view. It really bothered businesses that claims had to be legitimate and provable to be enforced. Credit reports and computerized scoring provided the perfect answer. Once US businesses agreed to form their own justice system they no longer had to have proof nor rely on juries to deliver - - now the accusation is the verdict and it is all done with the push of a button.
"Any indication of negative credit history without meeting the full disclosure and time limitation requirements of the Fair Credit Reporting Act has been held to be a per se violation of the FCRA. Defendant credit bureaus have attempted various schemes to override these consumer protections and the Federal Trade Commission has obtained decisions and orders prohibiting very similar conduct. vol 96 FTC 911-90 in the matter of Equifax inc. ""The limiting use of this stock sentence to those situations where adverse information had been uncovered indicates that its use was intended as a signal to disclose the existence of such information. The practice violated Section 605 of the FCRA.""
A process called Market segmentation (outside link-any email address will work here) is what tells lenders about people like you. It started out as a simple tool to target mail ads to those who would be interested in buying a particular product. Over the years business started to use this valuable marketing tool as a type of scum filter, to screen out those whom they would rather not have in their neighborhood for whatever reason. Tools designed for advertising are now frequently misused as a brick wall to keep undesireables (like you perhaps) from entering the marketplace at all--regardless of ability or willingness to pay. Laziness, greed and and a desire to avoid the risks inherant in a free market cause many firms to misuse both credit scoring and marketing data.
The Marketplace and Credit Scores
A healthy free maket is open to everyone with the means to compete. Class designation (aka market segment) should have no bearing on the right to buy or sell. In a free market there are no penalties for comparing prices or shopping for the best deal. The buyer researches the seller, since the buyer is taking the greater risk. What has evolved in the US (through extraordinary efforts to sell credit data) resembles not so much a free market as a private high school party. Those excluded are never told the real reason they weren't invited. The sellers offer and the buyers acceptance that form the basis of a free market are rapidly disappearing. Even when the seller has nothing at risk potential customers are told to "apply" and are judged by secret criteria that include what side of the tracks they come from, age, and various tests to see how well they fit the sellers stereotype. Credit scoring is the tool that hides this appalling fact from the public.
Don't believe it is this bad? Check out what happens to your information when you order checks from Deluxe Check Printers.
Does a low score mean I have done something wrong?
You have probably heard that scoring systems grade you on the likelyhood the loan will be paid back. This is only partially accurate. Modern decision/scoring systems are designed to find the most profitable customers--not the most reliable. The most profitable customer is not the one who regularly pays off the balance and knows her legal rights. No indeed. Banking profits come from overdraft charges, late payment fees and sky high interest on revolving balances. The profitable customer is deeply in debt and ashamed to challenge overcharges for fear of incurring the wrath of creditors. Scoring systems are designed to find customers who are in this trap and keep milking them, then dump the account just before the victim is forced into bankruptcy. Being an intelligent consumer and managing your money wisely will put your credit score in the dump. Spending so much that you have to borrow to survive will go a long way toward improving your credit score (and destroying your life).
If your score is low you are in good company. Often the best credit risks have the lowest scores. Take the hypothetical example of Bill Gate$. Microsoft, and presumably Bill, have no debt. His savings, investments and money owed to him do not count in credit bureau scoring. All the computer knows is that he isn't swimming in debt like everybody else and therefore assume he must be hiding something. Bills credit worthiness is further impaired by marrying later than those in his demographic group and thus he has committed the cardinal sin of acting differantly than expected. To a computer the worlds richest person is obviously a bad credit risk. Sorry Bill. You can't be trusted with a credit card or rental car.
If you have experienced this phenomenon, let us know at VCR mail
Why aren't these obvious suggestions in use today? Credit bureaus and scoring companies are heavily influenced by what their customers want to hear. As a victim you are not the customer. Financial institutions are the customer. Banks want to hear they can push a button and predict the future. They want to hear that loan defaults happen because of a personality defect in the borrower. They do not want to hear business policies cause defaults. And they certainly don't want to hear that credit report glitches are caused more by business than by the consumer.
The OCC (Office of Comptroller of the Currency) is doing more than any other agency to monitor scoring, but has been handicapped by Federal Reserve legal interpretations. The "Fed" has taken the unbelievable position that discrimination is legal if done by a computer. (see also Famous Failures.) Freddie Mac is the government chartered banking coalition that handles most low and medium priced home loans in the US. Freddies endorsement of credit scoring caused most financial institutions to believe you could predict future loan performance based on a single secret number derived from sources even the banks have no way of verifying. Default rates skyrocketed as those with extensive histories of past debt were granted home loans while those who saved and avoided debt were turned away as bad credit risks. A program that claimed to open up housing to "marginal buyers" ended up rejecting far more applicants than the previous system.
Read the
Freddie-Mac credit scoring "fact" sheet and see if you can spot the logic errors that sold the Federal Reserve and Freddie-Mac on the validity of credit bureau scores. (Hints: You can predict yesterdays horse races using any predictor you want - you will always have high accuracy. Look for sampling errors and cause vs effect confusion.) Read the Mosely Report starting at Chapter 1 if you want to be astounded at the assumptions made in order to validate real estate loan credit scoring systems. What they won't tell you is that mortgage default rates skyrocketed shortly after scoring was forced on the mortgage market, despite a booming economy. This fits the historic record of increasing personal bankruptcies as credit reports/scoring replaces good banking practice.
The FTC is tapdancing on the issue of scoring with a new series of slightly more realistic brochures on general credit scoring and equal credit opportunity. Both brochures skim over the issue of marketing databases used in scores.
History is full of oppression by prediction. The claimed ability to predict the future is a favorite tool of those who would control the destiny of people without their approval, and even the oldest religious texts warn against it. The right of Kings to rule without the peoples consent (the Divine Right) was based largely on his ability to fortell the future (divination). The predictive power of head measurements (the "science" of phrenology) was once widely accepted. Eugenics mixed biased predictive models with racism and found entire nations willing to accept predictions as it became a favorite of Nazi scientists. Handwriting analysis -- using a computer for a dash of credibility -- still promises advice at circuses all over the world. It doesn't matter what they are called--fortune tellers, diviners, or soothsayers--they all claim to have some secret tool to read the signs and omens. Fortune tellers base their predictions on what they consider likely in their own little world, and this inevitably leads to bias. Indeed, most superstition and prejudice in todays world stems from yesterdays accepted methods of predicting the future.
Secrecy and mysticism are hallmarks of the crystal ball crowd, and it is that secrecy that divides the soothsayer from the scientist. A diviner justifies his predictions by saying he forsaw events that have already happened ("The signs were there. I could have warned you...."). In the real world this magic doesn't work and so he hides behind layers and layers of secrecy, spreading the word that his power is just too complex to be understood by anyone else. A scientist submits his theories for publication and peer review, controls the experiment and data for bias, and tests his accuracy by using prediction tools that were designed before the predicted event took place.
Predictive Pigeons---Insidious Inquiries---Federal Follies---Famous Failures---Market Madness---Psuedo Science---The Spy in your Wallet---Schroedingers Cat---Related Links---What Should count
The Skeptical Inquirer Asks the right questions about Psuedoscience and paranormal claims
Bayhouse talks about buying a home and FICO scores
OCC warns banks not to rely on scoring
Freddie cautions about credit scoring use
Discrimination and Scoring models
Basle Committee International banking and risk scores
What SHOULD influence a credit score?
We think basing credit scores on the uncontrolled rumor mill known as credit reports or on a consumers shopping habits is hogwash. There are better ways that would give both parties the information needed to decide if they wish to enter into a particular transaction. Credit Scoring by bureaucrats who should know better
Background - Scoring systems are, in theory, regulated by several Federal Agencies and laws such as regulation B. Due to a lack of centralization (and too many lobbyists) no single agency has authority over scoring developments. The future
Get familiar with the phrase "Transactional Data". It is the data gathered about what products you buy when paying by credit/debit card or using an ID card of any kind. Retail outlets are collecting and using this information in ways you would not approve of. discussion groups and trade magazines are hinting that your bank (or paperboy) can already judge your worthiness based on what book titles you buy (King James versus New American) or what hair care products you use (Clairol versus AfroSheen). Many sheltered programmers in the scoring industry don't realize how far this trend has already gone, but it is apparent that what you buy does affect your ability to get credit. Want more? Here is just one firm (Deluxe check printers) that analyzes and sells your checking account information.The desire to predict the future
Since the dawn of man there have been those who claim to predict the future. Their predictions find easy targets in those who wish absolute control of others without risk to themselves. Advisors to Caesar killed a pigeon the night before a battle and solemnly studied the twisted pattern of the guts to determine the outcome of the conflict. The Roman empire rose and fell on such superstition. From The Vaults
The following item appeared on our pages back in '95. We are doing a followup:
Federal Reserve Governor Can't Get "Toy's R Us" Credit Card
Original news story A salary of $123,000 and a seat on the Board of the Federal Reserve wasn't enough to convince computers at the Bank of New York to grant Lawrence B. Lindsey a Visa Card. Published reports indicate the credit scoring program rejected the application because the applicant had 8
reports issued in the last year. Both Toys R Us and Bank of New York issued statements regretting the incident and offering Mr. Lindsey a card. No mention was made in either statement of the millions of ordinary citizens who are victimized the same way each year. Mr. Lindsey has been a vocal critic of credit scoring systems for some time. The Associated Press quotes him as saying "If human beings are taken out of the loop, some rationality and common sense is lost in the process."Scoring links of interest
National Realtors Association gives hints on improving scores.