Are Credit Score Full Of Crap?

Image by Casey Serin via Flickr

Credit scores run our lives. They decide if we can get a car, get a house, or get a credit card. Every facet of our lives is governed by credit scores. Some employers take a look at your credit score before they hire you. The car insurance companies are jumping on the bandwagon. They will charge you more if your credit score is too low. I was late twice on my mortgage payment. Does that make me a horrific driver? Or my credit score is 810 do I get the job? And if I am hired do I get a larger starting salary? Companies are blindly using credit score for events that have nothing to do with credit. The scores were designed for one thing only. Should I loan the borrower some money, or not?

But how accurate are these scores? It is hard to believe that someone will not get hired because of a credit score. If the database of information is the same for all three credit reporting agencies, how come they give different results? And herein lies the problem. The credit reporting agencies do not share their information among each other.

It is time to revamp the credit system. We need a system that is open and transparent. A system that the average American can understand.

There are three agencies that provide credit scores.

Equifax uses the FICO score. This is the most popular. The scores range from 350 to 850.

Experian uses Experian/Fair Isaac Risk Model or PLUS. The scores range from 330 to 830.

TransUnion uses Empirica. The scores range from 300 to 850.

Lenders generally use one of the three credit reporting agencies. They will send their reports to the agency that they use for assessing borrowers. The average credit score in the nation is 700. This is hard to believe considering the amount of debt that American are carrying. Credit card debt is high. But student loan debt is even higher. Foreclosures are at a record pace for the last 3 years. By the end of 2011 there will be close to 14 million foreclosures.

There are two myths I would like you to think about.

Number one is that no credit history equals a poor credit score. With no negative reports on a borrower, he or she will likely start in the 600s.

Number two is that wealthy people have better credit scores. Income and assets have nothing to do with your credit score.

Related articles by House Refinance Center.

Why Do Borrowers Default On Their Home Loans?
Know Your Closing Costs And Be prepared To Negotiate
Lawyers Get Slammed In Foreclosure Mess
How To Negotiate A Second Mortgage
Foreclosure Procedures: Know Your State Laws
What You Should Know About Reverse Mortgages
Fannie Mae Sets Timeframe For Foreclosures