The Credit Bureau Monopoly

Since I work for a financial services insitution and have, in various capacities for several years now, I have spent a lot of time thinking about credit reports. I know the ins and outs of the Fair Credit Reporting Act and the problems that can happen with an individual's credit report.

And, like it or not, we are all defined by our credit reports. This single document can make the difference between owning a house and not, between getting a job or not, between being able to send your kids to college, or not. Credit bureau apologists will tell you that the document is reflective of whether the person has been responsible with their finances over time or not, and if someone has a bad credit report, that is because they were irresponsible. And, often, that really is true. Except.

Except when someone has a singular, long-standing dispute with a company over a bill, and on principal, that person refuses to pay the bill. Except when someone's ex-spouse runs up the credit card bills in that person's name without telling them, declares bankruptcy themselves, and then leaves that person stuck with overdue bills and significant "late payment history" on their credit report. Except when someone is a vicitim of identity theft.

It used to be that credit reporting was fractured and inconsistent, so, financial service institutions had to take into account a number of other factors to show the customer's likelihood for financial responsibility. And, yes, those factors included personal interaction with the customer themselves and personal references from the customer's employers, friends, business associates, etc. But, with the improvements of technology over the years, personal factors do not matter at all compared to the line items on your standardized credit report. So, any of the personal trauma leading to the exceptions listed above do not matter -- typically.

I applaud financial services institutions finding alternative ways of granting credit to folks that do not include the almighty credit report. There are a lot of underserved populations who either have no credit, little credit or abysmal credit out there -- and most members of that population are legitimate U.S. citizens or have every legal right to be in this country. Some of those folks really are irresponsible with credit and should be viewed as very high risk. But, if the financial institution can figure out a way to separate those out, without the benefit of the credit report, why shouldn't they use that methodology?

Innovation like this in financial services is unusual and should be encouraged. Sure, maybe there are some issues with the initial implementation of the methodology, but, the idea itself is solid and important and good.

That's my soapbox speech for today.