If you’ve got a credit card — or, like many people, a slew of those offerings — in your wallet, you likely know a thing or two about Experian, Equifax and TransUnion.
Those are the so-called “Big Three” actors that collect, cull, report and regularly update financial information on consumers across the country, including in Arkansas.
What they essentially do is reduce scores of millions of Americans to nothing more than abstractions through algorithms that provide snapshots of each of us as credit risks.
We all have numbers that are based upon our historical behavior regarding taking on and paying back debt, with those numbers materially influencing our ability to take on more debt and the bottom line as to what it will cost us. The higher your number (your FICO score), the lower the interest rate that will typically attach to new debt you assume for things like home mortgages, auto purchases, certain student loan products and other things.
And, of course, the converse holds true, which spells trouble for many consumers. If you have a demonstrated history of problems with timely and sufficiently paying back debt, that FICO number tumbles, with predictable consequences regarding the spiked interest rates you will see on future borrowing opportunities.
Here’s the rub for many people concerning credit reporting agencies, given how important their numerical assessments can be to daily life: they have a demonstrated history of making mistakes and also including information in reports that contains errors committed by individuals and entities reporting them.
And what that often yields as a result is this: If you have a lengthy credit history, it wouldn’t be too surprising that your personal data has from time to time contained incorrect information that hurts your score and renders you less attractive to lenders.
The Big Three are aware of the problem, and have announced their intent to meaningfully respond to it via changes that will soon be reflected in their reporting guidelines.
We’ll take a look at the details in our next blog post.