I guess I have a “thing” for skinny British guys – and once I saw John Oliver’s bit on credit scores and how dangerous that three-digit number can be, I naturally got a bit intrigued.
In case you haven’t seen it, here’s his spiel on YouTube:
“Measuring credit enables businesses to know who to lend to. It’s critical to our economy and it always has been,” he began. Landlords, insurance companies and potential employers all use credit checks to make decisions on doing business with YOU. In most cases, the accuracy of the report is hugely important.
Before we get too far into bashing credit reports, let me state this: I understand the intent of these reports. By analyzing a person’s financial history, future lenders can make a more informed decision about that person’s ability and likelihood to pay the loan back in full. In theory, it makes sense. History, after all, very often repeats itself.
However, these credit reports are fraught with problems and, arguably, are overused to the max.
The problem stems from the “Big Three” credit agencies (Experian, Equifax and TransUnion) marketing these credit numbers well beyond simple money lending. In short, these agencies try to convince us that not only do credit scores reveal a person’s likelihood to pay back a loan, but they also indicate how good of an employee they might be during the interview and hiring process.
Ah, another market! Corporations always seem to be hiring somewhere, aren’t they? And when they all rely – at least in part – on people’s credit numbers, business for these credit agencies naturally picks up. Go figure!
But, it’s bullshit.
A representative from TransUnion admitted to an Oregon legislature that there is NO correlation between a good credit report and a person’s ability to do their jobs well. “…we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.” (Source).
But the problems only begin with creating demand for these misleading reports.
Credit reports contain mistakes
“Credit reports can contain a shocking number of errors”, Oliver states. About 1 in 20 credit reports, according to a news clip featured in Oliver’s report, contain errors significant enough to make people pay more for a car loan.
Putting the wisdom of taking out an auto loan aside, this is frightening.
Judy Thomas looked at her credit report and saw debt from the state of Utah that she didn’t recognize, only to find out that that debt belonged to a woman named Judy Kendall, not Judy Thomas. “What the hell is her debt doing on my credit report?” Ms. Thomas asked. And rightly so. What the hell is that woman’s debt doing on YOUR credit report, Ms. Thomas?
Where’s the accountability?
And by the way, there was another Judy Thomas, back in 2002, who got confused with the very same Judy Kendall on her credit report. If you or anyone you know is named Judy Thomas, I am truly, truly sorry for your/their dumb luck.
Oh, and damn you, Judy Kendall. Damn you.
Actually, scratch that. Let’s not damn Judy Kendall. She’s doing what all good Americans do, after all – acquire debt. She wasn’t the one who erroneously (and repeatedly) put her own debt on other people’s credit reports. The system, through its mindless and blinding complexity, did. A system that we clearly cannot trust, but routinely use as a basis for making important decisions in our society.
The numbers don’t lie (though your credit report certainly can). A Federal Trade Commission study from 2013 found that as many as 42 million Americans have mistakes on their credit report. Basically, the entire population of the state of California has mistakes on their credit reports.
I mean…holy shit.
And yet, these credit reports remain heavily used. They are integral documents in loan decisions. Potential employers consider them. They effect our lives in very real ways. This is flat crazy.
And then there are background checks
They sound wonderful in theory, but a striking number of background checks contain omissions and errors. “This whole industry seems uncomfortably complacent”, Oliver argues. And, that’s a huge part of the problem. When background checks and credit reports are used to make incredibly significant decisions for people, the least that these agencies can do is ensure their accuracy.
But, none of these agencies accept any responsibility for delivering inaccurate background checks or credit reports. Instead, they blame unnamed upstream entities for the mistakes. They claim “middleman” immunity. If they deliver a bullshit report on a person, it becomes that person’s responsibility to clear their name. But very often, it’s too late to save their jobs. Or their homes.
The same problems that exist with credit checks also exist with background checks.
Examples of mistaken identities are all over Google. Here’s one published by USA Today of a Darlene Martinez who applied for a nurse’s assistant job at Scottsdale Healthcare. She got the job – pursuant to a background check.
Oops! The background check revealed a felony conviction for drug possession.
The problem? It wasn’t her. Her background check included information for another woman, Darlene Foster – that’s right, not even the same name, birthday or social security number. Ms. Foster was born 10 years after Darlene Martinez. Ms. Foster was the one with the drug possession charge.
Sadly, too bad for Ms. Martinez who got screwed out of a job thanks to a mistaken background check.
The job offer was rescinded and left Ms. Martinez with a mess on her hands to clear her record. She also hopped onto public assistance to pay her mortgage.
How in the world does this happen? How can a background check for Person A include damaging information about Person B with a different name and social security number, but yet, Person A still gets screwed out of a job? And the background check company throws up their hands and says “Oh well, not our problem.”
Why is it Person A‘s responsibility to clear their name – which can take years, of wrongdoing based on no fault of their own, lose their new job and live on public services?
This is maddening
If I hadn’t read story after story of erroneous background checks screwing people into truly unfortunate circumstances, I never would have believed it was possible…or at the very least, not this bad. Not in this country. We have blazing fast Internet access from virtually everywhere. We have insanely smart fraud detection systems connected to our credit cards. Oh, and I don’t really care about sending a man to the moon, but we can do that too…
But yet, we can’t perfect identity protection. Worse, if credit or background checks include inaccurate information, it becomes our responsibility to fix it – usually after we’ve been screwed out of a job, car or home. Almost zero accountability. It’s completely disgusting.
Have you checked your credit lately?
Steve is a 38-year-old early retiree who writes about the intersection of happiness and financial independence. Steve is a regular contributor to MarketWatch, CNBC, and The Ladders. He lives full-time in his 30′ Airstream Classic and travels the country with his wife Courtney and two rescued dogs.