Are Credit Rating services a De Facto discrimination on the poor and unfortunate?

There are serious problems with what is being stated here and what the three major credit reporting agencies (Transunion, Experian, and Equifax) are doing in practice.

1. These agencies don't report all of the person's payment history. For example prompt payment of rent, utility bills, and the other monthly expenditures that are far more important based upon "dollars" spent are not being tracked or considered.
2. A person isn't subjected to just one of these agencies but instead has to deal with all three. The agencies are not perfect and often report false information and if the person isn't actively tracking and addressing errors from all three then they can be denied credit based upon false information.
3. Not even all loans are tracked because "private notes" don't show up. For example if a person purchases a home with original owner financing that does not show up on the person's credit report.
4. If the person doesn't typically require credit and pays cash for major purchases like an automobile purchase that isn't tracked and can literally downgrade the person's credit report.

Ultimately the credit reporting agencies are not providing a good or even usable review of the person's payment of financial obligations to the lending agencies. These inaccuracies are more likely to adversely affect low income households as opposed to higher income households and it's the inaccuracies that create the discrimination.

 

Most lenders won't actually do that and will based their decision exclusively upon the credit reporting agency score. This isn't the only place where a credit score is used. For example often auto insurance premiums are based upon the person's credit score as well as driving record.

 

So basically you are condoning the material support of unhealthy behaviors?

 

So basically, you condone double jeaopardy?

YES, you got it. I am for supporting unhealthy behaviours, like BEING ILL.

 

If you want to complain about how the current credit rating is determined, then take that up with them ( its not my gig), or simply avoid seeking credit altogether. If you want to say that credit ratings should not exist, I would rightfully call you short sighted.

 

Alcoholism is an illness. Should auto insurance companies be forced to sell an auto insurance policy to someone who has convicted of drunk driving five times? How far should government go in forcing companies to do certain things?

 

Nice police state you got planned there. The ins FORCES your employer to test for drugs at ANYTIME. Im sure that driving should allow your ins to test at any time, huh?

 

What I'm saying is that government should get out of the decisions made by the private sector.

Government should not tell insurance companies who they should insure and it should not tell banks who they should lend money to. I'm advocating the opposite of a police state ... I want government to take a back seat and shut up.

 

The actual issue is whether our current credit rating agencies are discriminatory and they are. The question wasn't whether we should or should not have private credit reporting agencies.

I don't have a credit problem but will note that at one time, because of high income where I didn't use credit cards or purchase anything on credit (including the house I was purchasing on a private contract) I had a really low credit rating. After learning that took steps to restore my credit score like borrowing money I didn't need and then paying it back a few days later so that I never paid any interest on the borrowing. It was a big pain in the ass and nothing more but I could only do that because I had a high income well above my routine expenditures. A poor person couldn't have done what I did.

 

Strange, you responded with a diatribe to what I had said, and that isn't what I was talking about at all. If that is the issue you were wanting to discuss, perhaps you should have responded to a post where that was the predicate.

Oh yes, the soft bigotry of low expectations. So YOU could borrow money while having a "really low credit rating" and paid it back in a few days, but a poor person could not ( I guess presumably because theyd just blow it on a bottle of ripple). Got it. Good thing you weren't a black man, because he could have NEVER figured that one out ( sarcasm).

On top of that, should a poor person have a high credit rating ? Isnt the whole concept to be able to determine their ability to repay a loan ?

 

I dunno. 666 isn't very high.

Maybe the mark of the beast should be 800?

 

As what their income is, as what their debts are then get references from ones work and banks and then issue loans based on that information and ones character. There you go.

 

A few fundamental problem with this.

First is the fact that commerce is a statutory privilege granted by the government and not natural right of the person because all natural rights are inherent in the person while commerce always requires two or more people.

Next is the fact that the person in today's society is forced to engage in commerce because 300 million people cannot go out into the wild and live off of nature anymore. The belief, for example, that employment and the employment contract are voluntarily entered into by both the employee and the employer is false. Only the employer's actions are voluntary because the employee must work or they cannot survive. The threat of not paying the utility bills, the rent, buy clothing, and food is a compelling force for the person to accept the employment offered at whatever the wage is even if that employment doesn't fully fund the expenditures of the person in supporting their household.

Finally is the fact that the political ideology of the United States establishes that the purpose of our government is to protect the natural rights of the person and left unregulated enterprise always violates the Rights of the Person. This brings us to the final issue of government based upon three different political ideologies that we can refer to as Poppa Bear (too big), Momma Bear (too small), and Baby Bear (just right) ideologies and there are quotations representing each.

POPPA BEAR IDEOLOGY

The Democrat's political ideology creates a government that is too large and there's a couple of reasons for that. First of all they don't have a real grasp of the natural rights of the person relying more on statutory rights created by the government. Next is that because they don't address problems based upon the natural rights of the person they generally address mitigating the symptoms of problems as opposed to the problems themselves that remove the necessity for the mitigation that requires larger government.

MOMMA BEAR IDEOLOGY

This quotation, often incorrectly attributed to Thomas Jefferson, is advocacy for minimalistic government promoted by the Republican ideology of government. The problem with minimalistic government is that it's incapable of protecting the natural rights of the person but that doesn't matter for Republicans that are typically more driven by Christian religious beliefs than they are when it comes to protecting the natural rights of the person that they rarely show any interest in or even knowledge of.

BABY BEAR IDEOLOGY

This, coming from one of the foremost advocates for the natural rights of the person, is the argument for the "necessary government" without regard to the actual size but instead where the size of government is dictated by the necessity to protect the natural rights of the person. It reflects the Libertarian ideology of government because the foundation of Libertarianism are the natural rights of the person. The more violations of the rights of the person the larger the government must become to protect those rights. The fewer the violations then the smaller the size of the government. Additionally laws and regulations affecting enterprise and commerce to protect the rights of the person are proportionate to the violations of those rights of the person by enterprise and commerce. By protecting the natural rights themselves the size of the government can be reduced because the mitigations of the violations require a much larger government than the enforcement necessary to prevent the violations in the first place. In some cases it's impossible for government, even with laws and regulations, to prevent a violation of natural rights and in that case the government must assume the role of mitigation because it was incapable of preventing the violation.

Our real problem today isn't that we have too many laws and regulations when it comes to protecting the natural rights of the person but instead that we have too few because of the minimalistic government advocated for by Republicans. This requires more mitigation by government that the Democrats support but because they don't really understand natural rights all they do is mitigate the symptoms of the problems without ever addressing the problem. This results in an oversize and bloated government spending massive amount of money in addressing the symptoms while the violations of the natural rights of the person continue virtually unabated demanding more mitigation.

Both the Democrats and Republicans are really responsible for the size and cost of the US government today. The Republicans for demanding government that doesn't protect the natural rights of the person which results in violations of the natural rights and the Democrats that require a very large government to mitigate the symptoms of the violations of our natural rights while failing to address the problem of the violation that they don't understand in the first place.

 

You should start your own bank.

 

Who checks your credit rating when you sell something?

 

How did banks issue credit to people in say 1900 well before the credit rating and that would be a good start. Lets see you would verify they had collateral, employment, had references from several sources, likely were a given banks customer since a child, knew their family, have existing debts noted and so forth then make a determination if they were a suitable risk or not. If you gave them a loan and they repaid it they would be a good risk clearly for another bigger loan. If they defaulted you went after assets and such as you would now. So credit history and relationships with the institution likely would be what should matter not if you have credit cards and available debt to access but are you likely to repay the debt or not.

 

In point of fact I had a lot of money and actually created the credit by prefunding that line of credit. So without affecting my financial situation at all I was able to put up $5,000 to create a $5,000 line of credit and then I still had the income to borrow a couple thousand dollars and repay that couple thousand dollars within days of borrowing the money. A black person could certainly figure that out but without the cash to fund the line of credit just knowing you could do it if you had the money doesn't improve your credit rating.

A prejudicial question that disparages those living in poverty generally reflective of economic elitism where those with money believe they are superior to those without.... but I'll answer it anyway.

No, the credit rating does not address the ability to repay the loan. The top limit for the loan is made by the lending company that establishes the loan limit or initial line of credit but more importantly by the borrower limits themselves because lending institutions will always based their limits on theoretical repayment as opposed to the actual ability of the person to repay the loan. I've never purchased a home based upon the amount the mortgage company would give me because I never wanted to be an economic slave to the mortgage. I purchase homes for about 1/3rd of what the mortgage company was willing to fund.

The credit rating is about the money management of the person in fulfilling their financial obligations and that has absolutely nothing to do with the amount of income of the person. In fact it can actually be more difficult for a low income person to manage their money to fulfill their financial obligations requiring the "robbing of Peter to pay Paul" in some cases or in finding other sources of revenue to meet their obligations. In any event when addressing a low income person, where they're never delinquent in meeting their financial obligations the credit rating of a low income person should be higher based upon the degree of difficulty in fulfilling their financial obligations.

On the other hand in having a high income, several times what I could actually spend, I had so much disposable income it was very easy for me to fulfill my financial obligations. The only problem I ever had was writing and mailing the check because the money was always in my bank account. My degree of difficulty was virtually zero because of the high income. Even today, now that I'm retired, I have more than enough income and money in the bank to have all of my monthly expenditures on auto-pay so I don't even have to write a check to pay my financial obligations.

 

So you want each individual lender to perform that many different functions when they could instead use one central company that could more efficiently collect that data and then resell it to the individual lenders ? I sort of get the impression that you do not understand the concept of economies of scale.

 

For the most part, they didn't issue credit in 1900, with the exception being the local shopkeeper whom knew you personally.

 

With such self reported high income, why is it that you had to fund a $5000 prepaid line of credit, in order to form a credit history ? That doesn't really make much sense. How bad must your credit have had to have been that you couldn't have qualified for a $500 high interest card ? They give those things away like candy to all but those with the worst of the worst credit history. Lack of a credit history does not place someone in the worst of the worst category. If lack of credit history were indeed your only problem, why would a $500 pre paid credit line not have sufficed? Why did it have to be $5000 ? Something here doesn't add up.

You need to read that question in the context of when it was asked. You were talking about a poor person not being able to fund any level of a credit history, where according to you, someone needs $5000 in liquid cash in order to do so. In that context my question was a retort to the general notion that if a person is unable to fund ANY level of a credit history (the bogus $5000 liquid cash requirement being ignored), then wouldn't that sort of indicate that they are a risky loan ? That question wasn't so much directed at whether or not debt to income ratios are calculated in the FICO score, rather it was intended as a philosophical question as to whether or not that is indicative of a lack of ability to repay a loan which is at the very essence of what a credit rating is attempting to provide in snapshot form. There is a symbiotic relationship between payment history and debt to income ratios, but the two are not inextricably linked. A larger loan is going to specifically look at the debt to income in addition to a credit rating, but a FICO score alone does not. That distinction however, is not relevant to the question in the context in which it was asked.

 

Credit histories were kept by banks for a long time this was added to other information collected for granting loans such as having a job awhile, having collateral, having some government program the VA for example backing the loan risks, or the SBA for small business loans, references and such and having a history with a given bank. Then they would determine giving the loan and interest rates from that. You could do this with a third party but my issue is its not a credit rating its taking a sensible look at the person and figuring how much debt they can take on so I would have the Name, SSN and an amount of debt they could take on and let lenders decide if they want to lend money.

 

If such a system could be feasible, I would have no problem with the concept. I have a feeling however, that there are complexities that might not be readily apparent. In truth, a credit rating is achieving the same goal, but simply uses slightly different methods. There are glitches in various things being reported/misreported with the current system, but those glitches are logically going to exist with whatever method you use to determine credit worthiness, so I am not sure that a change for change sake is necessarily in order.

 

I wonder how many people that couldn't pay it back the OP lent money to? I'm guessing 0.

 

Hospitals jack up their rates to pay for those that don't pay, and put the screws to everyone else. It is perfectly possible to be brought unconscious and unknowingly into a hospital and wake up owing outrageous amounts of money...and if you don't pay up they have high powered attorneys at their beck and call to nail you to the wall, not to mention destroying your credit rating.

 

It is true that I only lacked any credit history for about 20 years because the only major purchase I had was a home and that was on a private contract mortgage.

I never even thought much about why I picked $5,000 as the amount. It came up when I was talking with my bank manager about restoring a credit rating and I asked if $5,000 would be a good amount and he said yes. From my standpoint $500 wouldn't have had much of a purpose because I always had more than that on me so I would have never used the credit for a purchase of that amount. Of course I had my bank debit/credit card but those aren't connected to your credit score because the cash is automatically withdrawn from the account.

In any case I really didn't even think about it. The $5,000 was just a reasonable amount I pulled from thin air at the time.

A low income (poor) person might be fully able to meet their financial obligations with good money management but they may not have even $50 that they can use for a pre-paid credit card. It doesn't really matter though because they may have made their rent payment on time for years, not considered in the credit report, and based upon that alone they could very well be able to fund a home mortgage with the same monthly payment amount. They still need the positive credit score to be able to secure a loan that doesn't increase their monthly expenditures.

We can't go through every possible anecdotal situation but poor people that can properly manage their money can also benefit from a line of credit where the precondition is a good FICA score and they should be able to secure the line of credit even if they've not used "reportable borrowing" before. It's the management of money that matters when it comes to repaying borrowing and not really whether they have a previous credit history.

That's where I find a problem with the credit reporting industry because so much hangs on that report. These companies don't report the actual spending of the person related to the majority of their expenditures, which is very important, and instead focus on just a very small piece of the person's money management.

As noted though we're not going to fix the problems with the credit reporting industry here but there are certainly problems with it that should be fixed.

For example I believe that the person should be able to select which credit reporting company is authorized to report on them to lenders. For example the "consumer" could pick Transunion as their credit reporting company and any lending institution or other enterprise that wanted a credit report would have to use the Transunion credit report. This would eliminate the current requirement for the consumer to have to deal with three different credit reporting companies which places an unnecessary burden on the consumer.