3 Common Criticisms about Credit Rating Practices

Your credit rating is determined by a reporting system developed over years of uncertainty. Today, three credit bureaus hold the power to determine your financial stability: TransUnion, Equifax and Experian. These three bureaus are responsible for tracking and validating all of your debt and repayment history. With the advent of faster communication technology, the three bureaus can track credit scores without too much effort. Unfortunately, the systems used to calculate and track these scores are often criticized. 

#1 Lack of Positive Reporting 

All too often a borrower sees a negative report from a creditor who has never reported a positive score. For example, if you fail to pay your electric bill for even one month, the utility company can send the debt to collections and knock your credit score substantially. However, if you pay your electric bill on time and in full for two year's running, you may never see a single positive boost in credit. The same is true of gas bills, water bills and even medical bills. These non-lending related agencies fail to report positive information and only rely on the threat of negative information to keep you on track with your payments. 

#2 Lack of Power for Borrower

A borrower has very little power to create positive credit; lenders reserve almost all the power in credit reporting. One common scenario that may occur happens when a borrower works with an unethical lender. Unethical lenders distribute loans against the better judgment of minimum requirements. A strong example is a high risk lender who provides car loans to the unemployed. There is a very high rate of default in this business, but the lender assesses such high interest rates he or she may still come out with a profit despite many defaults. This practice is harmful to the many borrowers working with the lender and the lending industry in general. A borrower who defaults on one of these loans, though, will end up bearing the brunt of the bad practices. That borrower will see the default on her record and will also face repossession. The borrower can do little to report the lender and protect his own credit score. 

#3 Lack of Oversight

There is no day-to-day oversight on the credit rating industry. Borrowers are charged with the responsibility of watching their own credit scores and reporting misinformation. It is very common for a credit bureau to get bad information about a debt. For example, some collections agencies will attempt to recover funds from borrowers even if they do not have a legal right to do so. When you are contacted by a collections agency, you should always check your contract to validate the agency has a right to attempt to collect. You can also ask the agency to validate the debt in writing. Many borrowers do not take these steps, though, and the agency continues to report bad information to a credit bureau. It is up to you, the borrower, to check your credit and file for removal of the information. If you do not do this, no oversight board will step in to correct the error. 

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