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Credit Education
Credit Revolution
Chapter 16

Credit System Mythology

Of course the companies that control our credit system don't want you to know these things. Why not? Probably because some of them comprise the world's most powerful banking interests, and they desperately need you to believe that the world is put together in a certain way. Otherwise, they won't be able to keep average Americans paying their Mercedes Benz payment.

Not knowing the truth, though, can cost a consumer tens or even hundreds of thousands of dollars during an average lifetime.

Where credit reports are concerned, there are essentially two sets of "truth." On the one hand, there is the fairly meaningless happy patter creditors want you to believe, which you can find repeated in just about every credit-related book and Internet website. And then, of course, there's the real truth.

Unfortunately, in order to truly embrace stark reality we must first peruse the prevailing fiction. So we'll examine both here. This chapter aims to demolish the various social psychoses perpetuated by your creditors (and abusive debt collectors, if you happen to be acquainted with those) and transport you to a veritable Valhalla of consumer mental health. Even better, maybe you'll end up saving a few bucks.

Since one of this book's co-authors is a psychologist, we'll use the word "psychosis" to describe the craziness some of these large companies foist upon us.

Psychosis #1: The nature of credit bureaus.

Credit bureaus are official, perhaps even quasi-governmental agencies, and such vital American institutions work alongside your creditors to keep every adult citizen toeing the financial line.

There's so much wrong with practically every word of this fantasy that it's hard to know where to begin. To be sure, there isn't anything much official about the credit bureaus at all. Rather, the major consumer reporting agencies -- Equifax, Experian, and TransUnion -- are simply three large companies operating respectably within the private sector.

In fact, in you were so inclined, you could own a piece of Equifax and Experian yourself just by telephoning your stockbroker. (Forget about buying shares in TransUnion for now, though, as it's still privately owned.)

Sadly, too many creditors want Americans to believe that the credit bureaus enjoy an official, quasi-governmental franchise and will somehow punish consumers who dare to fight back against sloppy reporting, usurious APRs, exploitative late fees, inexplicable surcharges, unethical debt collection practices, and worse. Such creditors want people to believe that challenging a credit report item is like questioning a courthouse record. Fortunately, that's just not so.

So contrary to the prevailing conventional wisdom, there are no official bureaus. And while most Americans perceive their credit reports to have at least the same legal standing as their driving records, the truth is that the government has no role in producing them. Put bluntly, no law mandates a credit report's existence, and such documents may be considered to be no more than a list of allegations remaining to be proven.

Psychosis #2: Your credit report is reviewed carefully.

That used to be true.

Once upon a time in America, if you applied for a credit account anywhere, a bookkeeper in some dusty back room requested a credit report from your local bureau. In fact, in those days before the corporate titans took over, all credit bureaus were local. Then, every line of your file would be assessed, and if there was a problem, you might be telephoned or called in for more discussion. Lo, you might even be asked for a personal pledge attesting to your responsible intentions. Then a decision would be rendered, usually, but not always, in your favor.

The problem with that business model is that it isn't very "scalable" -- meaning that it's hard to do for 300 million Americans. Scouring an individual's credit report takes time, and it also takes skilled human beings to render careful judgments. Unfortunately for fair decision-making, that's just not manageable if you want to extend credit to hundreds of thousands or even millions of people on a national scale...


Load more of this Chapter

Credit Revolution: Path of the Smart Consumer 2007 John C. Heath, Esq., Dr. Randy Padawer, Jayson R. Orvis. All Rights Reserved. Published by Far Cliffs Multimedia, LLC

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