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What would you like to do?

I've received some great responses to my original post, and have already responded in-depth to one of them. I now have another, even longer and more thoughtful response, and I'd like to dissect that as well, because it highlights the same initial issues I had with the first one.

The user has also responded to my response to the other response (there's an amusing sentence). They state that they've worked in the financial industry for multiple decades, so it's interesting to see how those in the field actually use and regard the system.

Specifically, it looks like they utilize it happily, and simultaneously abhor it. To quote:

To make matters worse, the bureaus have managed to convince American consumers to become obsessed with credit scores. Why? collection!

Which is fine, but it doesn't quite establish an internally consistent philosophy when they say this as well:

... the credit reporting system works for its intended purpose, to make credit decisions on potential borrowers. In my long experience, it's not at all "idiotic."

Credit reports can tell you a lot about a person. I've often said, "Show me a credit report and I'll have a good understanding of a person's character."

Now, there is some nuance here. I take it that this person is saying that the super important and totally real CLASSIC FICO or whatever is the one that's not at all idiotic, whereas everything else is garbage.

I mean, alright. Fine? But it does seem like a weird flex to say that you can assess a person's character from a credit report, and then also be upset that the bureaus are collecting data about those individuals to (presumably) aid their reports. Assessing a person's character is a hell of a thing, usually you don't want to take that sort of judgement lightly, and thus wanting to defend the basis of your assessment of a person's character using a report which is sparse on data to back it up seems like wanting to have your cake and eat it too.

This is all very emblematic of what I was getting at in my follow-up article, which is that stating how something works is not the same as justifying it, or even justifying why it works that way. I'm not at all surprised that someone who has made extensive use of this tool would want to justify it, that's a normal human response, but justifying and describing are entirely different endeavors.

Now what I'd like to do is go through the ten points that were made, and discuss them, because they're mostly all good, they're just not rationalizations for the system.

Each numbered item is the original statement, and I will be responding to each point beneath it.

  1. STOP wasting your time with that karma nonsense. It's a rabbit hole that, in my professional experience, does very little to assist consumers with valid credit guidance.

    It shows me accounts that are open, and it updates them once a month. For free. That's really helpful since Equifax leaked my data to unknown individuals, so it is mildly important for me to know whether or not someone is opening credit under my name, or making sure there are no unknown hard-queries which would indicate someone has enough information about me to initiate one.

    I'm assuredly not defending the product, but since the only other option is to get one report a year from each of the three dummies who handle this, Credit Karma is basically the only option for up-to-date identity monitoring for free. Yeah, I could pay for professional monitoring services but I find it deeply offensive that I should spend my money to make sure that people who know me least well and not at all aren't slandering me. Oh sorry, I shouldn't call it that, because obviously they wouldn't be doing it intentionally which makes it all okay.

    There's also the patently hilarious point that consumer's can't view their CLASSIC FICO score, even on the official full-scale report you can download for free once a year. Apparently this is reserved solely for those in the industry, and use plebes are going to have to settle on taking their word for it being valuable in assessments of our credit-worthiness.

  2. Credit scoring and credit reports are "organic" to a certain extent: many moving parts shifting each month. That's why the "karma" advice and others like it can't work correctly all the time, or in the long term.

    This is just saying that information changes and credit reports update to reflect that. I don't find that there are that many moving parts, because most people aren't opening and closing lines of credit on a frequent basis.

    I was extremely critical of the timing here. Once a month is a joke. This is the 21st century and it is not difficult to update information in real-time, or hourly if you're particularly incompetent, as reporting bureaus appear to be.

  3. Credit scores update once a month. Period. Not daily, not weekly, not based on activity. Creditors choose to provide reporting information to the THREE credit bureaus (Trans-Union, Equifax and Experian). The accuracy of that information can often be questionable.

    As I said before, and indeed as I just said, that's dumb. Imagine I've got terrific credit and a decent, steady job, but I suddenly develop a crippling gambling addiction. I could max out my credit cards and head to my bank and ask them for a $20,000 line against my mortgage or something. They pull my credit report and it looks great; this is a big addition of available credit but I've always been a good boy and I clearly pay off my bills every month so I must have terrific character.

    They're seeing the information from three weeks ago though, before I charged $17k to all three of my credit cards. Give me one single reason why a product which is supposed to provide useful decision-making information is on a monthly basis. Now give me a single reason why financial institutions would pay money for this, when they could all just share their account information with each other on a millisecond delay using their already extant electronic systems.

    This is a weird hegemony effect or something, because it's assuredly not a smart business decision on the part of the financial institutions. This is a bad product, stop using it.

  4. No consumer anywhere can obtain the same credit scores that we use in the financial services field. We use "CLASSIC" FICO scores. Even should you obtain your score from the FICO website, it's not a CLASSIC score. I've seen differences of as much as 100 points in either direction between the consumer-access credit scores and CLASSIC scores.

    Yeah I know; my article was an example of the CLASSIC score differing by close to 100 points. It's one of the many things that is aggravating, because these numbers are pointless. Even if I go to the FICO site I can't get a FICO number? Oh sorry, CLASSIC FICO number?

    Again, this doesn't explain why this makes sense or is acceptable. It's just a restatement of the facts, which I have mentioned and have taken issue with.

    This is effectively pointing out a problem with the system, as a justification for the system. "You can't see your score, no matter what." "Oh, well that seems like it could be a problem." "No, it's not a problem, that's how it works." "Yes, I know that's how it works. I am saying that how it works is a problem." "No, it works fine, doofus." "Oh, alright then."

  5. Financing decisions are made using CLASSIC FICO scores by pretty much every credit-decision maker everywhere.

    Which is fairly good evidence that credit-decision makers should be making minimum wage. Some computers at the agencies spit a number and some account data out at them and they use a rubric to make a decision. They get to make some personal calls within margins of error, but otherwise this is not what you would call a demanding job. I could probably train high-schoolers to make these decisions with the same level of reliability within a week. We'll do some exercises for a few hours each day and pin the scoring decision rubric up on the wall in their cubicles so they can reference it.

    If this seems cruel or cynical, I will remind everyone of the Great Financial Crisis of '08. Comparatively highly-paid credit-decision makers were the gatekeepers to all that bad debt, but they had access to precisely the same data that they use today to justify their credit-making decisions. The difference is their bosses posted rubrics with less stringent requirements. The scores and reports are not justified because they're used, and it would also appear that they're not used because they're justified -- it's just a system whose only usefulness is in ex post facto rationalization. The logic is circuitous.

    This is less "skilled labor" and more just labor that happens to be done while sitting at a desk, which automatically makes it pay better, I guess.

  6. The creditor you mention in your article is neither attempting to defraud you nor prevent your obtaining credit if you are creditworthy. With the credit score they gave you, you are not creditworthy by their standards. (FYI: You're entitled to a free Trans-Union credit report due to the credit denial; get it. You'll see what's really going on with your credit report)

    Literally the first paragraph of the article states this. At no point did I claim Goldman was defrauding me, nor did I even imply it. I believe I even repeated on several occasions that if I were Goldman and seeing the score they did, I probably wouldn't give me a credit line of more than a few hundred dollars either, if at all.

    The problem is that I wouldn't have bothered asking Goldman and Apple to give me some of that sweet, sweet plastic (I guess it's a magnesium physical card, but you get the point) if I had known that they have access to a score that is entirely unrelated to the one I as a mere mortal am able to see.

    The credit agencies are telling me that my credit is "meh, it's fine" and from that I feel comfortable asking someone to give me a credit card. Instead, I look like an asshole because the credit agency turns right around and says to Goldman "this guy's a putz". Is it not wildly apparent that in being this two-faced, the agencies are also clearly lying to someone? Is ... is that ... is it okay to lie now?

    If so, brother have I got a terrific proposition for financial institutions: The Dacoda Score. I'll give you a series of 28 different metrics (which I totally and assuredly did not pull directly out of my ass) for anyone whose name you send me. Doesn't even need to be a real person. Just email me a name and Venmo me $0.75. It's a bargain! If you aren't a financial institution then go ahead and send me your name and the same fee and I'll shoot you back some numbers too. I am a legitimate business which adds value to the credit-worthiness information market, I swear.

  7. Creditors of all sorts (mortgages, car loans, credit cards, etc.) have varying criteria from one creditor to the next to determine creditworthiness.

    Oh I'm sure loan officers et. al at each of the institutions that can make credit decisions have their own rubrics to work off of. Those are the direct result of the institution's lending policy, which is influenced by a variety of factors relating to the institution's operating details, the price of money, the Fed rate, etc. They probably also care about things like stated income, credit utilization, and theoretical credit saturation or whatever you'd call it -- how much could the applicant draw on all of their other accounts and how would that effect their ability to pay?

    Whether or not someone wants to give out a loan is their own business. Having them base it on a scam system is the problem.

    The other part of the problem of course is that I am very concerned that industry professionals have bought into this scheme at all. As I have said, all of the financial institutions could just link up their already-existing electronic records systems and then you wouldn't need a third-party with a nonsense score -- you'd have literally all the person's credit records and you could make an informed decision based on that, and it would be up to date by the second, just like my mobile banking app is.

    Why would anyone settle for handing out money to people based on a system that's known to be prone to inaccuracies, difficult for people to get those inaccuracies corrected, is lambasted for giving out "fake scores" to consumers even by professionals in the industry, and only updates their information once a fucking month? This seems like a bad product. Unless ... well unless modern consumer debt is also a really scammy and predatory system, but that's sort of just accepted knowledge at this point.

  8. I'd guess with your score being below 600, but not below 570 that your credit history reflects some derogatory accounts, but does not feature enough current, active "good" credit to counter-balance the older derogatory. My guess is based on reading thousands of credit reports. In other words, chances are pretty good I'm correct in my assessment.

    This doesn't seem like magic, nor does it seem like a compelling justification for the system being slow, clunky, and filled with known-errors. If a friend showed me their college essay's first draft and it was marked as a C- I would be able to reliably say that they wrote a paper which had some not very good sections, and there wasn't enough solid argument or pizazz to counterbalance the blasé and occasionally misspelled portions.

    I wouldn't call this an "assessment of character" though. I also wouldn't call it a very good indicator of how their final paper would be. Perhaps they will spend the next week doing serious corrections instead of getting blitzed at parties with me. Or maybe they'll come along to those parties and finish the paper the morning it's due, with a cracking hangover, also like me. That's more a matter of character and capability than their first draft's grade. Though I will say that for someone with terrible character and a terrific academic record, this metaphor may be almost as stupid as credit ratings.

    I realize nobody is going to believe me but I'm truly not bitter about the denial. What's frustrating is that the more I learn about credit reporting, the more absurdly idiotic the whole scheme sounds. Certainly it is reasonable to develop a universal, public algorithm to calculate a person's credit-worthiness based on given inputs. It is also reasonable to have a central party aggregate the relevant information about individuals from each of the banks so that all of them have the same information to work with.

    It is not reasonable to do this as slowly as it is apparently done. Again: I know my credit utilization at any moment thanks to the issuer's app. They clearly have this ability. It is likewise not reasonable to use a private, secret scoring algorithm that no consumer can view (despite it being about them) or calculate on their own. It is not reasonable to charge for access to documents pertaining to individuals, especially when those documents effect their ability to do things. And it is not reasonable for financial institutions to pretend that this is a workable solution: the flaws are blatant and could be easily fixed within the industry using systems which already exist and are operating constantly - personal electronic banking.

  9. IF my analysis in #8 is correct, you should immediately begin adding some value to your credit history. Become an Authorized user on a family member's good-performing credit account. Open a secured credit card with a bank that reports to the credit bureaus (not all do!). Open an account with an online catalogue company like Fingerhut; you're very likely to be approved because they want you to buy their merchandise.

    They also get the benefit of being able to write off any losses they incur by financing an individual who might not be able to meet the obligations. This is true of banks as well. I truly despise the banking industry pretending as though they are harmed in any real way by bad debts in some moralistic way. With a little clever accounting it's entirely beneficial for a bank to charge off an optimal and non-zero amount of debts each year, because they can book that against earnings, reduce their profits and therefore tax liabilities, and even qualify for tax credits and other terrific programs to keep them endlessly making money hand-over-fist on the corporate welfare system that all taxpayers are on the hook for.

    My credit is climbing because I have a credit card already, and I revolve the balance. It's fine. Soon I will peak but the mountains of student debt on my report will never go away and paying them down is literally impossible right now.

    But sure okay, I'll apply for a MasterCard so I can inflate my totally reasonable credit score by ... accumulating the ability to take on more debt. Obviously this system is very smart and rewards consumers for making good decisions, and isn't just a way to artificially create money and dodge taxes at the expense of unsophisticated consumers trying to make ends meet.

    Your credit score is bad because you didn't pay off some debts so take out more debts so it will go up is literally the best way to accidentally prove that credit scores are a joke.

  10. NEVER ever ever ever ever ever ever EVER pay anyone to repair/restore/add trades to your credit report. I've met too many people over my career who have done that only for me to tell them months later how terrible their credit is and, no, I cannot approve them for a mortgage to buy a house. They respond with the kind of outrage you express in your article. Those credit "repair" people are scams, IMHO. I don't care if they now appear as "legitimate" on the FTC website: I haven't seen a single case where those types of services assisted a consumer in the long term. And credit is LONG TERM.

    I have no idea what this is in reference to or means. I don't think I wrote about anything like that, but I'm leaving it up because it sounds like good advice. There are a lot of scams out there that prey on unsophisticated consumers who worry about their credit ratings.

    I wonder if that might be less of a problem if credit ratings weren't needlessly opaque, literally impossible to access as a consumer, and obscured by marketing half-truths. Maybe consumers would be less likely to fall for scams if their credit was something that made sense. Perhaps if they could access the actual goddamn report on demand, for free, easily, they wouldn't be such easy prey for scams because they'd know what effects it and how to make it better, and be able to track that as it happens.


I should clarify that I really do appreciate the responses, and I think a lot of the information is something that many readers may not know, or at least adds another dimension to their understanding.

It's just that none of it has anything to do with countering my complaint, which is that there is no justification for any of this working the way it does (or, rather, not working the way it doesn't). Even from the perspective of banks, the silliness of this system - and paying for it to boot! - is a horrible business decision.

There is value in a credit report - both for consumers and for financial institutions. This is not something I am denying.

What I am denying is that the credit reports which exist are valuable. Or perhaps I should say they are not as valuable as they could easily be for financial institutions, and considering consumers can't even see them in order to advise their financial planning and decisions, they are worthless.

Functional, sensical credit reports are massively valuable to all stakeholders.

It's a shame they don't exist.

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