You’ve seen the ads on television. The poor schmuck who didn’t spend every minute obsessing over his credit score, and thus lost his car, his girlfriend, etc.
In fact, you have been carefully trained to stress over your credit score, to check it regularly, and to pay money to belong to a credit protections service.
It is all a hoax perpetrated on the American consumer by the banking industry. I started writing about this on business and professional blogs several years ago, but in the ensuing years the problem has only gotten worse. So here are the plain facts for you to consider”
- Your credit score is a phone number, invented so that you cannot ever win. Use a credit card to help keep your business afloat? Bad score. Use credit too little, or too much? Bad score. Buy groceries with a credit card, the way the credit card company urges you to do? Bad score. Get up on time every morning? Bad score. Get divorced, seek medical help, get in an accident that is not your fault? Bad score. If you are noticing a trend, you are right – there is nothing you encounter in everyday life that will not give you a worse credit score.
- Here’s a shocker: the leading cause of bankruptcy in the United States is not people abusing their credit. It is middle class people with perfectly good credit and health insurance who have one single episode of health misadventure. The hospitals and medical services will gleefully put your bill into collection, and…well, bad score.
- If you have erroneous information on your credit report, good luck ever getting it changed. The credit reporting companies do not make a nickel from correcting their erroneous information, and they generally do not bother. Because they know what you do not: credit scores are a hoax that they financially benefit from.
It gets worse. We learned just this week that millions…MILLIONS…of people who had mortgages with Fannie Mae were erroneously listed as having defaulted on their mortgage. Permanent stain on their credit score, and Fannie Mae says it will NEVER be able to correct the problem. Never.
Here’s what is really going on. Lenders make their money based on the interest rate. Once upon a time, that interest rate was an estimate of risk. That is, if you were a higher risk for repayment of a loan, you were assigned a higher interest rate. Young men under the age of 25 who wanted to buy a car paid 24 percent interest, while the same loan for the same car for a family man with three kids and a white picket fence was about 8 percent.
But then the economy crashed. Suddenly car companies could not sell cars, banks could not make loans, and the housing market tanked. Which completely panicked the financial industry. If people did not borrow, they went out of business. Making it worse is the fact that the Federal Reserve Bank held the prime interest rate at less than one percent. Lenders were caught in a massive squeeze. The Fed’s low rate meant that lenders had to offer near-zero interest rates…but if they did so, they would go bankrupt.
Enter the Credit Score. This hoax enabled lenders to claim that you did not qualify for that near-zero rate because you have a LOW CREDIT SCORE. You have to pay more, no matter what the published rate may be. Of course, they can’t possibly justify this obsession with credit scores to simply justify their usury. So they created a crisis called Identity Theft. You must check your credit score, believe in your credit score, monitor your credit score so that you do not become a victim of Identity Theft.
But is that really such a big deal? At best, Identity Theft affects about 7 percent of households. That is to say, 93 percent of Americans will never be victims. Wow.
So…we should obsess over credit scores, spend our money for monitoring services, and accept higher interest rates for no good purpose? Well, that’s what your lender wants you to do.
You can fight back, of course. You can pay off your credit cards and mortgage, and never take a loan again as long as you live. That may mean a few months of discomfort, but in the final analysis you will be happier and the nation as a whole will benefit. Or you can simply line the pockets of lenders with profits they have not earned.
Your choice. But if you expect me to buy into the credit score hoax, don’t hold your breath. I gave up that game long, long ago.