Thursday, June 26, 2008

Lions and Tigers and Credit Bureaus (oh my!)

[A warning to my lovely, sweet readers... This is a bit of a rant. While I don't want to offend anyone by getting too political, I figured I should get this off my chest - I was so caught up in thinking about this issue that I accidentally wore my shirt inside out to work today. (Bill and Jim would be so ashamed!) If you are feeling non-political this morning, feel free to go read about unicorns instead. XOXO, Jane]

Dear VantageScore,

You are officially on my poop list. I check my credit report three times a year, once from each bureau. Every so often, I pay $6 to see my credit score (and the credit bureau's "interpretation" of my credit score). Yesterday, when I pulled my report from, I figured I'd check out my credit score on the new VantageScore model.

Now, I suppose I should mention that I am not actually angry about this new scoring model on my own behalf. I'm not planning on applying for credit any time soon, and my score was fine anyway, so I have nothing really to worry about. But there are a few things that bugged me, VantageScore, and I'm pretty sure that you are ageist, classist, and (after a little research) quite possibly racist as well. Also, I think you hate single people.

Sigh. Where to begin?

(From report)

"Top Negative Factors Affecting Jane's Score:

1) The average loan amount across open, recently reported real estate accounts, such as a mortgage, is too low. Having low loan amounts has a negative impact on your credit score.

Now VantageGuard, that just offends me. I bought my condo by myself*. Sure, I would have liked to buy one of those beautiful condos in a high rise downtown, but I knew I couldn't afford a huge mortgage payment with my current income. Does having an affordable housing payment make me a riskier borrower? I can't think of a logical reason why.

I can, however, think of a logical reason why this is the top negative factor on my credit report. By heavily weighting mortgage information (or lack thereof) in determining a person's credit score, VantageScore provides a way for lenders to legally justify charging young, single, or poor borrowers higher interest rates** on auto loans, credit cards, personal loans, and mortgages without violating the Equal Credit Opportunity Act (or other anti-discrimination laws), even if these borrowers have previously used credit responsibly. After all, what groups tend to take out smaller mortgages (or not have mortgages at all)?

2) The balance amount paid down across your open real estate accounts, such as a mortgage, is too low. Paying down the balances on your real estate accounts can have a positive impact on your credit score.

Fair enough, I suppose. I've only had my mortgage for a year. But again, why is there so much weight placed on homeownership? I wonder.

3) Your report shows that the available credit across your open, recently reported revolving accounts, such as a credit card, is too low. Having low available credit amounts on revolving accounts has a negative impact on your credit score."

Um, VantageScore, now you're just smoking crack (oh yes I did go all 1995 on you!)(Oooh! I did it again!). I calculated my percent of available credit used across all of my available credit lines (based on the balances on the report YOU provided), and I only used 2.5% of the credit available to me this month. I went back a few months, and my credit used never went over 3% of what's available. Even on a single card, I never used more than 10% of what was available to me.

Now, I know you use "complex, proprietary algorithms" to calculate my score (best not to get me started on how this completely undermines Truth in Lending), but how does using 2.5% of my available credit make me look irresponsible? Shouldn't it all be based on how much (or little) I use my cards? Why are you punishing me for having lower-than-average credit limits?

Wait a second... "Experts" recommend that credit limits be proportionate to income. Silly me, VantageScore. We all know that income in the U.S. is evenly distributed across different age, race, and gender groups.

OK, OK, VantageScore, I will tone down the sarcasm. It's not very nice of me.

According to the credit bureaus that created you, you were developed, VantageScore, to address problems with the more common FICO score, such as score variability between different credit bureaus, non-predictive scores for borrowers with limited credit history, and consumer difficulty in understanding credit scores. (Ha.)(Sorry, couldn't help it.) Allegedly, your creation was not just an attempt to get a piece of FICO's cash cow and suck up to banks by offering up a convenient scapegoat for the mortgage crisis.

Why should I be so upset that you provide credit scores that (essentially) factor in a person's income (and/or net worth)? Well, credit scores are generally the main factor in determining the interest rate a borrower is charged when s/he gets a loan. Thus, if more lenders begin to use VantageScore, people who are not older, white, and married will have to pay higher interest rates to borrow money. Not particularly fair in my book.

See you later, VantageScore. I'm off to go turn this into a letter to my congressman.

Not your friend,

*Remind me someday to write a love letter to the State of Texas for requiring me to sign all my mortgage paperwork as "Jane X____, A Single Woman." Gotta love community property states! (And I thought my cousins were bad.) I asked my mortgage officer if I could cross out "A Single Woman" and write "Spinst-ah Witch!" He was not amused.

**Despite (somewhat) popular misconception, credit scores are not generally used by lenders as the sole means of determining who does or does get loans, how much money is issued to a borrower, or if the borrower has the means to pay back a loan. (That is what banks hire loan officers to do.) Rather, one of lenders' main uses for credit scores is to set normalized (i.e. fair, non-discriminatory) interest rates.

According to a loan officer at my credit union, lenders used to set interest rates based on a borrower's "relationship" with the lender. (You can imagine how that would lead to some pretty icky rate-setting practices.) If you're a nerd like me, here is a really interesting article from PBS) about the history of credit scores.

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