Three Ways the Fair Credit Reporting Act (FCRA) Did Not Fulfill Its Promise

"It is the purpose of this title to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title." A direct quotation from Congress, the previous text is the purpose of the Fair Credit Reporting Act. In short, the FCRA is designed to help protect Americans from unjust practices of the credit reporting system. While this goal is an admirable one, a quick look around today's credit systems shows the results have ended up short of expectations. What follows is how the Fair Credit Reporting Act has been unsuccessful in producing a just credit system for today's consumers. Detailing the Failures of the Credit Reporting System 1) Accuracy - It is documented that credit reports contain inaccuracies but it bears repeating. Recent studies show that 79 of credit reports contain factual errors such as duplicate listings, wrong dates, tradelines added to the wrong credit reports, and positive credit accounts that are not included. These same studies also indicate that 25 of credit files include errors significant enough to cause outright denial of credit. How fair is a credit system that can cause a person to be declined for a loan or force them to pay higher interest rates than are necessary based on their actual credit risk? True, you can dispute these inaccurate listings , but this is not always simple or foolproof. Depending on the types of the erroneous items in your credit file, credit repair can be a maddening and time consuming ordeal that you are forced into because of no fault of your own. 2) Relevancy - While they may not communicate it directly, the Experian, Equifax, and TransUnion's creation of the VantageScore is evidence enough that the current FICO based credit scoring models are not as predicative as they could be. According to Experian spokesman Donald Girard, the VantageScore is "the most sophisticated, highly predictive scoring model that's available in the marketplace" and as a consequence the much more popular FICO score is less predictive. One of the shortcomings in the FICO score that the VantageScore tried to address is the importance that very old credit listings have on the credit score. According to Dr. Bonnie Guiton Hill, advisor to President Bush on consumer affairs, "it is our understanding that computer models that predict credit worthiness find most information that is more than two years old nonessential." This is why newly created scoring models like the VantageScore are beginning to ignore credit accounts that are over three years old. It does not serve to accurately determine a consumer's credit worthiness. So why has the financial community been so slow to adopt scoring models such as the VantageScore? They say it is because FICO is engrained in the current credit system and has stood the test of time. A more cynical answer is that these lenders are unmotivated to sacrifice the huge profits they make from charging higher than necessary interest rates on credit provided to people who are a relatively low credit risk. 3) Proper Utilization - With how common it is for a credit score to be a gross misrepresentation of a person's credit worthiness, it could be argued that the popularity of credit scores in the financial market is improper. In today's society, however., the use of consumer credit scores goes far beyond deciding the size of a loan and its interest rate. Employers, landlords, insurance companies and others often request to see your credit reports. In today's society your ability to get a certain job, rent an apartment, or get approvedqualify for reasonable insurance premium can all be dependent on your credit reports. Improper is a subjective word, but getting passed over for a job because of irrelevant and possibly erroneous negative credit listings in your credit reports that are plugged into a less than perfect credit scoring formula to produce a credit rating that is not indicative of your credit worthiness fits the bill.

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