|Received:||3/12/2005 9:42:18 PM|
|Agency:||Federal Trade Commission|
|Rule:||Notice of Proposed Study on the Effects of Credit Scores and Credit-based Insurance Scores on the Availability and Affordability of Financial Products|
Comments:The use of credit scores for obtaining credit decisions in and of itself is a good thing. The problem lies in the underlying report and the way that certain items are scores. For example, I have been using credit since I was 18 years old. My credit history is now about 10 years long. The credit report typically says that my score would be higher if I had 30 to 40 years of history...mathematically impossible. Other things that are not in favor of a consumer with otherwise good credit: credit card companies that do not report credit limits. It is well know that if you "max out" even one credit card, it has a very negative impact on the credit score. If an issuer chooses not to report a credit limit, then the default is to use the "high balance", if I have a card with a $10,000 limit that does not report and charge $1,000 with that being the most I have ever used on that card, I actually have 10% utilization which is good, but the score would treat it as 100% utilization. Another thing that has a negative impact on credit scores is the "universal default" clause in which I suppose if a creditor has a "bad hair day" they are able to increase the interest rate or reduce a credit limit. This has recently had a negative impact on my husband as a result of transferring balances to take advantage of a low interest rate. Because the amount of the transfer brought him near his credit limit on one card, several other cards increased interest rates AND reduced credit limits. In this case he had no more than 50% utilization on any card, after the limits decreased he was at nearly 100% utilization on these cards. Reduced the score by roughly 50 points. Thankfully we were not in the middle of a mortgage, this would have been devastating. There is something very wrong with the credit reporting system. This is one instance where you are most certainly guilty until you can prove yourself innocent. I understand that there are laws in place to protect the consumer, but they are not easily enforced. I work in the real estate industry and REGULARLY see customers forced to pay debts they do not owe because a collection agency bought a list from a credit bureau of those with recent mortgage inquiries and were able to get a partial name match and put the items on the credit report. The most recent case was just last week. Oh, and as for disputing the accuracy in this case...we can't even figure out where to send the check that the mortgage company required to be collected at closing. There is no contact information on the credit report for the collection agency- so the consumer was not able to contact them. As for using credit scoring for insurance...I appreciate that maybe there is some statistical data that shows a connection between those with lower credit scores being a higher risk, however, anyone who has taken a Freshman probability and statistics course should know that the numbers mean what you make them mean. FICO can't "see" how I drive. The scoring system does not take into account when major life events impact payment history- like 4 hurricanes within 2 months. Oh yeah, there was no mail delivery for a short time in some areas. The bills were still due, with no means to pay them. In closing, the scoring system is very convenient. It allows us to get instant credit decisions...that is a plus. The underlying system is broken. So, what do we do? 1) Require limits be reported (to meet the current standard of 100% accurate reporting) 2) Ban "universal default" clauses - they are unconscionable 3) Require creditors to disclose score requirements 4) Require permission before credit inquiry be 3rd party 5) Require Collection Agencies to submit proof of claims to Credit reporting agencies 6) Make the laws more easily enforceable. Many consumers cannot afford to hire an attorney every time the FCRA is violated.