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Problems Associated With Your Credit Report Score |
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A credit report score is a number, generally between 300-850, assigned to you to rate how risky a borrower you are--the higher the score, the less risk you pose to creditors. Your credit report score plays a vital role when lenders decide whether to lend you money or not. Your credit report score is not physically stored as part of your credit history on your credit file. It determines your creditworthiness. There are lots of problems associated with it. First you have to identify these problems and sorted out to get lower interest rate on your credit. Problems related with credit report score are listed below. Sub-prime lending: Individuals with higher credit report score are offered different services than those with lower scores. Individuals with lower credit report scores are targeted with sub-prime loans with higher interest rates. For example, to illustrate how credit report score affects interest rates: The Center for Community Change explains that individuals in the top credit score tier, +720, generally pay 5.546% for a $100,000 mortgage carrying a monthly payment of $572. If extended credit at all, an individual with a credit report score lower than 559 pays 7.945% on the same mortgage, carrying a monthly payment of $730. Furthermore, sub-prime and predatory loans are disproportionately made to minorities. According to the NAACP, African-Americans in all economic groups are disproportionately targeted with sub-prime and predatory loans. If an individual has a sub-prime loan on their credit report, it can damage their credit report score. The lower score, in turn, attracts more sub-prime loans, resulting in a vicious cycle. Expanding the Use of Credit Report Score: More services use credit scoring to evaluate their customers. As such, individuals with low credit report score are finding it more difficult to obtain good and services. Perhaps the most controversial new users of credit report score are insurance companies. Insurance companies are using credit report score to assess risk levels and loss ratios. Insurers believe that customers with low credit report score are more likely to make insurance claims. Despite the lack of a causal link between a credit report score and insurance risk, insurance companies nevertheless can raise an individual's rates or even deny coverage based this number. For example, whether or not you have an outstanding loan can cause your auto insurance premiums to increase, even if you have a perfect driving record. Critics charge that this use of a credit report score is completely arbitrary and it is an unfair business practice. Certain states have attempted to take action against insurance companies using credit report score. In California, lawmakers defeated a bill that would have banned insurance companies from using credit report score to set rates and deny insurance. An Alabama regulation is in its final stages that would prohibit insurers from considering an individual's lack of credit history. Inaccuracies in Credit Reports: Since credit report score is so important, it is imperative that the scores be based on accurate information. However, inaccuracy problems continue to hurt individuals' credit report score. An extensive study conducted by the National Credit Reporting Agency and the Consumer Federal of America revealed that 29% of individuals had significant errors in their credit report that translated into a 50-point or more error in their credit report score. Credit reporting agencies (CRAs) receive a vast amount of complaints, and they do not devote adequate resources to property address complaints. Additionally, CRAs are more concerned with amassing a large quantity of information about an individual's credit report score because this is what the subscribers demand. This practice compromises data quality because when retrieving information about an individual, CRA algorithms are designed to discard minor differences that occur in identifiers, such as incorrect digits in a social security number. For example, in a case against TransUnion, the CRA regularly mixed the files of Judy Thomas with Judy Upton. These files were mixed because of the similarities in first names (CRAs tend to link women by their first names to track them if they change their names in marriage), and because their Social Security Numbers were very similar. The presumption here is that it is better to gather more information and err on the side of inclusion then to risk excluding bad credit information about an individual. The potential resulting problem is a mixed file, where CRAs combine information from different individuals into one file. This also hits the credit report score of both individuals. Individuals with inaccurate credit reports will in turn have inaccurate credit report scores. They are denied credit, or charged higher interest rates, at no fault of their own. So, sort out these problems with credit report score and get back your life on right financial track!!! |
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