Credit Bureau or Credit Bubble?

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Are the credit bureaus responsible?
Are they contributing to the housing and credit bubble?
Why is identity theft so rampant?
What can we do about it?

“Those who cannot remember the past are condemned to repeat it.”  - George Santayna

Credit is the most terrifying and misunderstood financial item used by the consumer today. Most people have no idea what FICO stands for, or even understand how it affects their daily lives. Any purchase made on credit is controlled by a person’s FICO score. All major credit card companies, banking institutions, auto insurance, or life insurance companies, base interest rates payments and credit worthiness upon FICO scores provided by Equifax, Experian, Transunion or the newest credit bureau, Innovis.

Developed by Fair, Isaac and Company (FICO) in 1956, this formula is used to predict a person’s credit worthiness. Credit bureau companies such as Equifax, Experian, Transunion and Innovis use this formula along with a person’s Social Security number to calculate a credit score. In turn, they sell personal credit information to financial institutions. They have lobbyists in Washington, DC, and pay billions to Federal and State Representatives and Senators to pass laws to protect them from being sued or forcing them to correct their mistakes in reporting incorrect information.

The housing crash of 2005 was based on loans from subprime FICO scores. What is subprime? Subprime is any FICO score under 660.  Wells Fargo, Bank of America, Goldman Sachs, and Chase, among many other financial institutions, were all part of the subprime lending bubble. All these companies made billions from the subprime housing crash when subprime rated loans started to default.

Mises Wire asked the question in an article on 1/11/2016, “Is the auto bubble ready to pop?” (Tommy Behnke)  Jeen Ng of Morgan Stanley, in an interview with Zerohedge.com (Tyler Durden March 29,2017), stated that delinquencies of subprime auto loans are on the rise. Both articles state that with interest rates kept artificially low and dealerships pushing “hot deals” to people with SUBPRIME credit scores, it is only a matter of time before the auto loan-bubble bursts.

Goldman Sachs just purchased Transunion and made 1 billion dollars from your credit worthiness. Transunion is a data mining machine that allows Goldman Sachs access and the ability to share (sell) your credit worthiness to insurance companies, subprime lending companies and others. They are gambling on another credit bubble in both the automotive and student loan financial industries. Goldman Sachs has been in business for over 125 years. They follow trends of the historical markets and trends. With the purchase of Transunion, they can more accurately predict the next bubbles in the subprime markets.

All four credit bureaus have been sued for millions for improper credit reporting practices. Yet with their deep pockets and major influence in DC, they continue to operate without any oversight in the court of public opinion.  Equifax and Experian have each had serious data breaches recently.  Between the two companies, 250 million people have had their identity stolen. This is well over half the population in America! Yet Congress still allows them to operate without worry of penalties or fines.

MYTHS AND FACTS

MYTH: All companies report to the credit bureaus.

TRUTH: Companies are not required to report to the credit bureaus.  Most use your FICO score to determine interest rates and credit worthiness.

MYTH: All credit bureaus report the same way.

TRUTH: Even though all three credit bureaus use the same formula, each has a different way of reporting. That is why you have three different credit scores. If your credit score has more than a five-point difference between the different reporting companies, your score is not being reported correctly.

Three important truths:

  1. If you are considered subprime, car dealerships will “shop” or sell your loan to another company. “They apply on your behalf and without your knowledge.” What they do not tell you is that any financial company that does not buy the paper counts as a mark against your credit, keeping you in the subprime market. This forces you to pay higher interest rates.
  2. Only credit bureaus can remove or correct improper credit reporting
  3. You must ask and make sure that financing and payments are being properly reported.

As a Libertarian, I am extremely opposed to more Government control. However; Equifax, Experian, Transunion, and Innovis have operated without any oversight or financial responsibility since their inception. It is time for a public debate on how these four companies use FICO and your social security number to steal billions of dollars from the American Consumer in excess interest rates.

If you feel you are a victim of identity theft, contact the police, along with your State Attorney’s office. By Federal Law you are allowed one free credit report once a year. You should check your credit report every three months (not your score), and look for discrepancies and errors in details.

Look at how the bureaus are reporting your name, phone numbers, and addresses.  For example, check for the correct spelling of your name.  If your name is Marcus, they may have recorded your name as Mark, Marc, or Marcis, Review any credit cards, and check for any improper credit checks. If you have purchased a new or used car, see how many times your FICO and social security number were scored.

Credit bureaus are responsible for giving credit worthiness and FICO scores. Their reporting influences the amount of interest you pay . They data mine your life and reap huge profits by selling the information. Credit.com states that 250 million people are in the subprime market. All financial institutions make millions in higher interest rates that are charged to persons in the subprime market.

I do not know the answer to the problem, except to recommend that you teach yourself about credit. Understand how it works, be proactive.  Make sure you contact your Representatives, Senators, and Governors, and let them know you are aware of the Credit Bubbles looming. Demand they act instead of waiting and reacting, as most governments do.