The real reason everyone complains about credit reporting agencies

The most complained-about financial institutions aren’t banks or credit card companies. They’re credit reporting agencies — and by a wide margin.

In fact, the big three credit agencies topped the latest Consumer Financial Protection Bureau (CFPB) monthly report. Equifax attracted an average of 1,470 complaints during a three-month period from May to July. Experian took second place with 1,272 complaints, and TransUnion had 1,202 complaints. As a category, all of the credit reporting agencies are up by about 30 percent from the same period a year ago.

By comparison, the most complained about bank, Citibank, had only an average of 922 complaints during the same period.

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So why all the gripes? To answer that question, you have to take a closer look at a society that’s heavily dependent on credit and at the companies that determine how much credit each member of society gets. But the answer also reveals a broken system and a few workarounds that could help you avoid becoming another statistic.

The CFPB did not respond to a request for a comment about its complaint data. Neither did two credit reporting agencies, Experian and TransUnion. Equifax deferred to the Consumer Data Industry Association (CDIA), the trade association for the credit reporting industry.

Decoding the numbers

A CDIA representative suggested the government’s complaint numbers are inflated because they fail to distinguish between complaints and “innocuous” disputes.

“For example, consumers who are reviewing their credit reports for the first time might question an item they don’t recognize or understand and then lodge a complaint,” says Bill Mashek, the CDIA spokesman. “A consumer might also lodge a complaint against one of the credit reporting agencies when their issue is actually with another entity such as a lender.”

The credit agencies also say the government fails to verify any of the complaints; it simply reports them. And it has no way of weeding out potential errors, such as when consumers question an item they don’t recognize or understand on their credit report.

Consumers have a different perspective. They’re people like Peter Hoagland, a consultant from Warrenton, Va., whose homeowner insurance bill rose unexpectedly this year. He hadn’t made any claims, but soon discovered the reason: His credit rating insurance score taken a hit. He contacted his credit reporting agency. ” I could find no one to give me a credible explanation,” he says.

Hoagland contacted his insurance company and explained the problem, but the company stuck with its rate increase anyway.

“It feels to me that insurance companies are using these ratings as contrived reasons to raise rates,” he says. “They can’t cite claims I have made or increased risk with my home. So they hide behind these dubious insurance score ratings as justification to raise rates.”

It’s complicated

David Reiss, a professor at Brooklyn Law School
, says stories like Hoagland’s are common because credit scores affect almost everyone. They’re also difficult to explain.

“The credit reporting agencies have a big impact on whether someone can get a mortgage to buy a house as well as on setting the interest rate that they will ultimately pay,” he says. “At the same time, they often act in mysterious ways in terms of what they include and do not include on their reports.”

Josiah Nelson, a New York-based credit expert, says there’s another simple reason people complain about the agencies: “They’re the three biggest bearers of bad news.”

And when they deliver the bad news — that your credit is no good — they don’t do it efficiently.

“The main complaints are that they are slow to make updates, tricky to understand deeply, and hard to communicate with,” he says. “Many people also may associate their poor credit decisions with the credit bureau and just want someone to blame.”

The red tape that stands between consumers and a resolution to the credit reporting problems can be formidable, and the timing couldn’t be worse, says Thomas Nitzsche, a spokesman for Clearpoint Credit Counseling Solutions, a nonprofit agency that offerings consumer credit counseling. “They can create a significant roadblock for consumers during moments of emotional transactions, like trying to secure a mortgage, auto loan or credit card approval.”

Oh, and one other reason: Search for “credit report complaint” and the CFPB site is the top result. Thanks, Google.

What it means to you

Any way you look at it, these soaring complaint numbers are not good news. But there are fixes. The first step is to contact the reporting agency directly with any problem. Before you do, make sure the problem is with the agency — not a bank or you. Experts say a careful look at the issue will often reveal that the credit reporting agency is just the messenger.

You can also complain to the CFPB — ironically, adding to the complaint numbers — and the bureau will help you get a response within 15 days. The CFPB supervises the large credit reporting agencies, so it has some enforcement authority and may be able to help with a resolution.

A long-term fix requires a change in the way credit reporting agencies operate.

“With lax oversight, each agency is left to be self-policing, but what are its incentives to do a good job of that?” asks Marina Krakovsky, author of The Middleman Economy (Palgrave Macmillan).

“In the case of the credit reporting agencies, you have to ask where the agency’s loyalties lie. Credit reporting agencies are mainly paid by creditors who buy credit reports, not by the people whose credit the agencies track, so the agencies have little financial incentive to do anything about consumers’ complaints about errors. On top of that, weak regulation fails to keep them accountable as well.”

No kidding, says Michael Chadwick, a financial advisor. For him, the numbers tell a story of a broken system, of three large companies that operate with virtually no accountability.

“The fact that the credit bureaus do this without our consent, knowledge or approval and do screw it up, costing us money and time to fix, is truly a disservice to the public,” he says.

The solution is clear to some: This is a problem begging to be legislated. “I expect in time the government will pass some type of law forcing the bureaus to protect people,” Chadwick says.

For agencies that are barely regulated, not accountable to the people they serve and who draw far too many complaints, that may be the only solution — and one that can’t come soon enough.

Do we need new laws to protect people from credit reporting agencies?

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11 thoughts on “The real reason everyone complains about credit reporting agencies

  1. We have pretty decent regulation of CRA’s already (the regulations spell out all sorts of requirements for report correction and dispute resolution), but said regulation is inadequately enforced.

    But credit scoring? Not sure what to do there. In theory, credit scores are wonderful. They enable users of credit reports to have a standard way of evaluating potential customers without having to hire their own actuaries. But the opaque way in which they are calculated has the tendency to really aggravate consumers.

  2. The core issue here is that we aren’t the customers of credit rating agencies. Lenders and insurers are the customers. So long as the information the CRAs are providing them is useful, and predictive when it comes to forecasting loan default rates and insurance claim rates, they’ll keep using it.

  3. I have never had to check my credit ‘score’. Do you have to give permission for any lenders, insurers, etc. to share your info with Equifax etc. or can you just say ” NO ” ?

  4. I thought the reason people hated the credit reporting bureaus was because they were evil.

    The CFPB won’t be around much longer once the new administration moves in.

  5. There are legal avenues, but the real problem is timing, as the article notes. When you are getting a mortgage, and there is an inaccurate inclusion of “John L. Smith””s data into your “John I Smith” file, or a more blatant error that kills the deal, prevents you from closing on that house, and you’ve already sold your home so now you’re in a hotel, even though you can file paperwork to have the inaccurate info removed, you’ve already suffered damages, but probably not enough damage to really sue most of the time and cover lawyers fees.

    (I should note that an acquaintance had a problem like this, names changed, obviously).

  6. So when I was but a wee bird I got my first credit card. A few months later, I went to open up a bank account in another state. I was turned down for the “debit card” that came with the checking account because Experian confused me with a 65 year old woman who lived in another state and owed back taxes, landlords, and every bill imaginable. It took three months to clean up my name and I never once received an apology from the “mixed files” department I had to deal with.

    So, whenever I hear the name “Experian” I think about firebombing their offices.
    (Please note this isn’t a terrorist threat but a use of hyperbole. Please don’t send the law after me)

  7. Having spent my working career as a Mortgage Banker (CMB) involved with all aspects of the business, I believe the biggest problem with evaluating an individual’s credit ability is the use and reliance on FICO (Fair Issacs Company) scoring. Why do I make this assertion? Prior to FICO, an underwriter had to evaluate applicant’s credit, determining how much cedit they used, i.e. how many accounts were opened with balances, their payment history especially on loans, their liquid assets, and most importantly their debt service ratios (monthly payments as a percentage of monthly income). Today, it appears the creditor merely looks at the FICO score to make a credit decision. WRONG.
    I’ve been retired for years, pay my credit cards in full every month, have assets that don’t necessitate having dozens of cards with high credit limits, and have always closed accounts that I didn’t use by writing the creditor and requesting the account be closed with the file noted ‘at the request of the consumer’. I didn’t want someone to think the account was closed by the creditor for an unknown reason. My FICO score is lower because of those happenings. Here’s where I begin to have issues with FICO.

    First, FICO wants the consumer to have many open accounts with balances below the credit limit so that the consumer can use the unused credit as a back-up if needed. From my experience, I’d rather see few open accounts or no credit history at all, showing me that the applicant has the ability to manage his/her money and credit. More credit availability means a potential for higher monthly payments when the applicant uses more credit, thereby potentially putting timely loan payments in jeopordy. I approved loans for many applicants having no credit history and they were excellent borrowers.

    Second, FICO scoring is unable to know the liquid assets of the consumer, a very important part of credit underwriting. Most credit applications fail to inquire about assets as part of the credit decision. From my experience, liquid assets are an important part of the underwriting decision. My score was lowered because I didn’t have enough open accounts with available credit..

    Third, FICO wants a long term history showing well aged credit accounts. As I said above, I close those accounts I don’t use so FICO scoring downgrades my credit score because I didn’t keep my Standard Oil credit card from 1969 open, even though I stopped using it years ago.
    ***NOTE: Credit information used to be kept for an average of 7 years, 10 if a Bankruptcy, so closed account history disappears after seven years.

    Fourth, for years, credit reports only showed the minimum monthly payment due which was used in the monthly debt service calculations. Today, the three credit repositories report the payments made, if provided by the creditor, so an underwriter can determine how the applicant makes their payments, i.e. in full every month. FICO appears to ignore such information in it’s scoring model.

    Fifth, is not so much an issue with FICO as it is with other businesses that use FICO when determining financial risk, i.e. insurance companies. I wonder how a business unrelated to the credit industry can accurately determine their risk by using, in my opinion, a faulty scoring system.

    Many entities wisely recommend the public obtain their ‘free’ credit report at least once a year. Everyone should do so as the report will tell them their credit status, not a credit score, and more importantly, tell them if an unauthroized person has opened accounts in their name. If you disagree with an item in the report, you can dispute the item while on-line. Follow up with the credit repository with supporting documentation and a cover letter explaining why you believe the report is inaccurate. Be sure to send the same information to the creditor. It may resolve itself. Credit repositories report what is reported to them so if there is an error, it may be the creditor supplying incorrect information.

    1. People who have paid off their mortgage on their homes also take a hit on their scores because they no longer have an active home mortgage. Gee, I would think that that would be a plus that one no longer has a mortgage, but it is a minus. It still pops up on the credit when I check. Of course, I still have a score in the 828-832 (changes a bit whenever I open a new account or close one) range, but I know that it would probably be a bit higher were they not dinging me for not having a mortgage even though I usually have an open auto lease and a few credit cards with high limits and never carry a balance. But, I guess that is the way it is.

  8. Credit scoring is pure voodoo when applied to an individual. No matter how much rationalization and “big data” one applies it still is voodoo. The companies use it because it allows them to take more money without real justification.
    Credit score is a wet dream that can be adjusted to fit anybody’s desires and it only depends on its developer’s life experiences which most of the time is minuscule.
    Prediction of loan defaults rates of a population has NOTHING to do with any given individual. Anyone who believes otherwise – has no clue about statistics or big data.

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