Is the Credit Rating System Fair?

The main reason that the credit rating system is fair is because each person controls his/her own credit rating. Your borrowing and payment habits are what dictate your credit rating. If you abuse your credit, your credit rating reflects the same. However, if you are a responsible credit user, your credit rating will be favorable.

Lenders need a system that can help them determine whether a person is a borrowing risk. By using the current credit rating system, lenders have some kind of barometer for measuring credit risk. Without such a system, obtaining a loan would be extremely difficult because lenders would require, among other things, years of financial records to help determine the potential borrower's creditworthiness. Our current credit rating system conveniently compiles all of a person's financial records and uses them to create a nice, neat number that lenders use to make lending decisions.

The people that complain most about our credit rating system are the people that have low credit scores. These people claim that their low credit scores are somehow not their fault. These people claim that the credit card companies kept sending them more and more credit, and that they just "had" to use this additional credit. Are these people serious? We reap what we sow. It is amazing to me that a person can abuse their credit privileges, and then complain about the penalties that are assessed as a result of their abuse. These complainers are proof that the system is fair and is effectively working. If the credit rating system was unfair, these credit abusers could continue to take advantage of their credit privileges to the detriment of responsible credit users.

Another common complaint that people make is that they have no credit score before they apply for credit. The argument that these people make is that they have never had debt, therefore, they should have a high credit score. How does this make sense? A credit score measures a person's creditworthiness. Therefore, how can one have a credit score without first having credit? This is not a hard concept to understand.

The system is not perfect, but it is fair. I have had my credit score reduced due to negative information being placed in my credit file that was not mine. I had to get the information removed by contacting the credit bureaus. I would be lying if I said that the information was immediately removed. In fact, it took a couple of months to get the information removed. I was not happy, but mistakes happen. If the system was perfect, there would be no complaints.

The point is, the system is as fair as it can be. If you feel that the credit rating system is unfair or unreliable, pay cash for everything. If you cannot afford to pay cash for everything, stop complaining about the system and use the system to your advantage. If you use your credit responsibly, you will have nothing to worry about.


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The Importance of Knowing What is in your Credit Report

Many people believe that they are immune from fraudulent or incorrect information in their credit report. I, however, have experienced a phenomenon I like call “credit reporting agency stupidity.” I would like to use a less harsh word than “stupidity,” but after what I have experienced with these credit reporting bureaus, “stupidity” is the only word that accurately describes their practices.

I am named after my father, therefore, we share the same name. The only difference between my name and my father’s name is that my name has the Roman numeral “II” following my name (denoting “the second”). My social security number is different and, quite obviously, my birthday is different. One would think that any one of these differences would lead a credit reporting agency to understand that my father and me are two separate individuals. However, such is not the case.

I cannot tell you how many banks and credit bureaus I have had to contact in order to remove items from my credit report that belong to my father. It is amazing to me that a credit reporting agency with millions of dollars cannot figure out that I am a separate individual from my father. Are they so ignorant to think that nobody in this country has the same name as another person? Is not that why the government provides social security numbers so as to distinguish between the numerous people with the same name? I can only imagine the problems in the credit report of a person named “Michael Smith!”

The point is, you need to check your credit report regularly to avoid any shenanigans that the credit reporting agencies love to create. Make sure that all the information in your credit report is correct. If you find any inaccurate information (even if it is something like your current occupation or your phone number) dispute the inaccuracy and provide the correct information. Trust me, you do not want to experience “credit reporting agency stupidity.”