Credit Score Industry Infighting: Greed Exposed

February 12, 2009 by  
Filed under Debt and Credit

Full disclosure:  I detest the credit score industry.

If you are like most U.S. consumers, you have been brought up (or forced to participate) in a consumer credit system in which we are taught to worship at the altar of the almighty credit score.  This causes many of us to focus on the wrong parts of our financial life while overlooking little things like true wealth building.

The FICO oligopoly has gotten into the heads of millions of Americans. Part of this is out of necessity because the credit score slime has slowly but surely oozed out of where it began.  The score has become more than just a measure of your credit-worthiness.  All kinds of businesses use it as metric of your worthiness as a person in general.  Insurance companies, landlords, prospective employers, you name it.  It’s disturbing if you really think about it.  (Please take time to really think about it.)

Remember in school when some teacher threatened to put some bad behavior of yours on your “permanent record”? We laugh about that now, the whole idea of a “permanent record” being maintained in secret by others and following us around wherever we go.  I don’t laugh about that.  The credit score oligopoly owns your permanent record.  And they are determined to further expand its use.  This is not some public service operation.  It’s all about making money from information – mostly bad information – about us.   (Yes I know your credit histories are not forever and always “permanent” but try fixing something in a hurry with those folks.)

You may be wondering about my use of the phrase “credit score oligopoly.” My assessment of the credit score industry is that it is dominated by four players, operating in a top down, push down system.  Those players are the inaptly named “Fair” Isaac Corporation (FICO), Experian, Equifax and Transunion.  FICO is (or at least has been) at the very top, telling everyone how our personal worthiness is to be condensed into a three digit number, the FICO score.  Experian, Equifax, and Transunion are credit reporting bureaus that use the FICO scoring system to arrive at their own credit scores, based on data they have about you in their systems.  They then sell access to those scores to millions of businesses who want to make all sorts of decisions and judgments about us based on our permanent records.

As a measure of the dominance of this system,  I have read that at least 90% of the largest financial institutions use FICO scores, along with the 25 largest credit card issuers.  It’s like the SAT and ACT combined only it never leaves our resume.

Oh, the oligopolists also sell score access to us.  Some years ago the government (finally) sort of forced the three credit bureaus to make credit histories (our permanent records) available to us.  That did not include, however, the actual scores.  So the FICO machine took that ball and ran with it, setting up all kinds of credit score monitoring services that we can subscribe to, for a price.  The FICO oligopoly created the need, got us addicted, and now is making us pay for our addiction.

With all of this credit score revenue at stake, I was not surprised to learn last week that two members of the FICO oligopoly are fighting with each other.  To me, it’s like two vultures fighting over a piece of road kill. Experian has pulled out of a six year agreement with FICO whereby FICO was allowed to re-sell Experian’s version of your credit score through the myFICO profit center.  This action by Experian is no doubt related to a pending lawsuit among FICO, Experian, and Transunion in which they are waging a war over the enormous stream of credit score revenues.  (Equifax settled out of the case.)  Isn’t it heartwarming to have these nice companies fighting over us and our permanent records?   Boy, wouldn’t I love to be on the jury in FICO vs. EXPERIAN.

What should we take away from learning about this credit score industry infighting? On the practical side, it means that it will be harder – and perhaps impossible – for consumers to directly access the Experian version of their FICO score.  (Experian has other scores it will gladly sell.)  On the philosophical side, it further confirms how the credit scoring industry is all about profit and greed, mostly generated at our expense.

Whenever I complain about our fixation on credit scores, I am reminded by readers and other bloggers that this is the system we are in and we must play along or suffer the consequences.  I get that.  All I am asking is that when we get the chance to push back, we do it. Let’s force a change in a system that has gone far beyond its reasonable boundaries. We could ask landlords, employers, and others to judge us on us, not on some number that has proven itself to be a moving target.

Will you join my campaign against credit score obsession?

Image credit: Shaun W/Shuttermom

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12 Responses to “Credit Score Industry Infighting: Greed Exposed”
  1. Andrea says:

    I was just digging into some FICO stuff yesterday for a friend and was fuming along these same lines. It should be unacceptable that we have to pay for scores that determine our ability to purchase. It should be unacceptable that American Express bases rates on where I shop. It should be unacceptable that the whole credit rating score is mores complicated than a time traveling Island hopping love triangle on Lost.

    It pisses me off.

    YAY! We agree on something! 😉

  2. Andrea – I’m confident we agree on lots of things and I am glad that this is one of them.

  3. Ahead of the curve? says:

    Well, I used to be a landlord and I pulled credit scores on tenants. There’s something to be said for a way in which to evaluate whether somebody is or isn’t a deadbeat. It’s hard to tell otherwise. I don’t understand the crusade. If there was less of a profit motive, would that make it better? Would it be better if the government did it?

  4. Curve: I understand your need for tools to evaluate prospective tenants. How about asking references, the way it used to be? We have people who are afraid to close credit card accounts because it may lower their credit score. We have people freaking out over lowering of credit limits on their credit accounts because that will lower their credit score. This lowering of the score will signify to landlords that they are less worthy as a tenant even though neither of these actions has anything to do with their value as a tenant. My son who has never used credit at all but has a good job and is 100% responsible would be turned down by some landlords. He has been refused the right to open a savings account because he has no credit history. It has become an out of control monster.

  5. TMN says:

    I agree we need more regulation around their responsibility to provide free access to ALL their data for your personal verification, and their responsibility to fix issues when found.

    But come on, people are freaking out? It’s not that hard… don’t pay late, keep your oldest card around because it shows your good borrowing history, and that’s about it. The situation is bad, but interacting with it isn’t as mysterious as you’re claiming.

    As for too much being tied to it… when you rent an apartment, you’re being given access to a valuable piece of property in exchange for the promise to make future payments. You can do a hell of a lot more damage than your first month’s rent and disappear in a week if you’re that kind of person. It seems reasonable to check your history of using credit, since the landowner is basically opening a line of credit in the amount of the damage that you could do to the property, and they want to know whether you’ll be able to pay it off if you use it.

    Basically you can’t say “I never use credit” if you’re a renter. You do use credit.

  6. HomeFree says:

    I agree that lazy business practices should be reformed, such as insurers who base your rates on a FICO score. What ever happened to getting to know your clients and making a decision based on that knowledge? I have no idea what my scores are and I really don’t care because I’m not worshipping at the FICO altar. I won’t pay to learn my score and after the mortgage is paid I have no plans to ever borrow money again.

    I will support a change in the system that truly has become a monster! My part of the change is something really radical by not using credit; instead I’m paying cash and really enjoying the experience!

  7. Andrea says:

    @TMN – You are of course correct that paying your bills is the best, and simplest, way to maintain a good credit score, and keeping old cards shouldn’t be a big challenge unless you’re a total spendaholic …

    … but what do you say to TML’s point that a credit card company’s decision to cut your credit limit can impact your credit card score even though you had nothing to do with it. Say, for example, that you keep that oldest card and for years you’ve been getting notices from them that they’ve raised your rates over and over again, which helps your score, and then one day they decide to slash it and drop your score, even though you haven’t used the card for years?

    I’m just curious. I think his point was mainly that FICO shouldn’t be so complicated, it’s gotten out of control, their access to consumer information is probably being used in ways that we wouldn’t like if we knew about it.

  8. lurker carl says:

    I agree that the FICO score has become another money grabbing tool used for measuring the everybody’s personal and financial credability. A low score is not a reliable reflection, there are quite a few people who have never borrowed money. No history, no debit to credit ratio, nothing for FICO to measure. Their poor FICO score leads the casual observer to think these folks are deadbeats when the credit report shows the true story.

    Companies don’t want to spend the time and manpower (money) to wade through credit reports when a FICO score number can be instantly spit out of a computer. FICO offers cheap and easy way for many companies to extract maximum profit by taking short cuts at their customer’s expense.

  9. Sarah says:

    I have to say I don’t understand why “the FICO oligopoly” is getting most of the blame here. Yes, 4 giant corporations created a business tool that expands opportunity and they make lots of money off of it. How does that cost or damage the consumer directly? Nobody forces consumers to use credit. In fact, nobody forces consumers to buy anything since everyone can get a free copy of their credit report every year. People don’t have to subscribe to monitoring services. If they read the fine print, all the agreements say that the lender has the right the change the terms. It seems to me like some people are whining because they didn’t read the fine print.

    Is it the fault of “the FICO oligopoly”, that some businesses choose to use the FICO score incorrectly? Well, if they market it to businesses that way, maybe. But I’d say most of the blame lies with the business that chooses to use it for inane purposes. Nobody complains about hammer manufacturers when some idiot tries to use one where a crowbar would be more appropriate. Why blame FICO when the real culprit is the idiot business (like GMAC)?

    I think people need to understand the tools they use. I’m all for more information available to businesses and consumers, but beyond that, I don’t see how two vultures fighting over revenue streams affects me even a tiny bit. My records are what they are no matter who has the right to calculate what off of them.

  10. TFB says:

    Stop being obsessed about the credit score – I agree. Do the right things for yourself and good credit scores will follow. Don’t waste money buying your score.

  11. kitty says:

    @TML – regarding landlords using references instead of a credit score: references are important, but sometimes the previous landlord would give great references just to get rid of someone quickly. Sure, you can ask for a reference from a previous landlord, but what if someone is young and only lived in one location? As TMN said – you are giving someone an expensive property to use. The tenants can damage it – which is why references are important, but they can also stop paying. If your tenants don’t pay on time, you still have to pay your mortgage on the property, common charges/maintenance if it’s condo or co-op, taxes.

    Sure as a landlord you can chose to make exceptions to allow for cases of people who don’t use credit or who are young. I made such an exception when I rented to a young couple – a young MBA with a very well paying job and his (very) young wife. I liked both of them a lot, a young man had a very well paying job that I verified, and I asked for deposit, first and last (!) month rent upfront. Also, the fact that the young man simply took out a checkbook and signed a check for $3750 immediately meant that they weren’t exactly broke. But as a general rule, you want to verify both the references (preferably from more than one place) and the FICO.

    @Andrea – regarding credit limits. It’s unfortunate, but I suspect that credit card issuers need to do it. Not only the credit business is riskier now, they expect losses in the value of their assets. When banks’ (and AmEx is a bank holding company now) expect losses, they need to have more money in reserve before they can lend to maintain the required ratio of money they gave as loans and capital. Hence they have less money to lend. Since credit limit is a potential loan that they may not be able to afford to give, they need to cut it. Banks are hoarding money now because they have no clue of how much losses they’ll have. Just a guess.

    I do agree that we need more transparency; I also think we should be able to get our own FICO score for free. Maybe their algorithms aren’t great – my credit score actually went down a little after I paid off my mortgage because I didn’t have real estate type of loans. This is silly – they should take paid off account into consideration. But as to the rest – I agree with Sarah and TMN.

    I do agree with TFB about not obsessing with one’s score. I do check my credit report every year, but as long as everything is OK I don’t bother paying for the score. But then I don’t plan on borrowing any time soon; besides, I figure as long as I get a lot of 0% offers in the mail, I am fine.

  12. Chip says:

    Business owners are inconvenienced when they surprisingly learn that their “business credit card” is attached to their personal liability. When their personal credit is affected negatively, their business suffers with higher interest rates, lowered limits, and hidden finance charges.
    One of the best ways to protect your company credit card accounts is to move your invoices over to a true Commercial account in the company name, with no personal co-signing.

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