UNDERSTAND CREDIT SCORES

magine being tracked 24/7 by an invisible network, then classified and ranked according to a secret formula. Imagine your “file” was full of inaccurate and discrediting information, yet it was being sold to critical decision-makers and used to compute a numerical ranking which determined your ability to access the basic necessities of life—a roof over your head, basic utilities, even a job. Imagine this (low-ball) number turned out to be a self-fulfilling prophecy, sealing your fate in a financial caste system.

These are the basic dynamics of the system of surveillance and control known as “consumer reporting.” Over 90% of the adult population is somehow entangled in the “dragnet,” yet few know precisely how—it’s hard to keep track. Consumer reporting agencies (CRAs, or simply “bureaus”) gather, organize, and standardize consumer data—how we pay bills, how much money we owe, where we work and live, whether we’ve been sued, arrested, or filed for bankruptcy—then sell the information to creditors, as well as employers, insurers, and increasingly, to consumers themselves. The “Big Three”—Equifax, TransUnion, and Experian—have long dominated the consumer reporting industry. Often labeled the “national credit bureaus,” they are actually global corporate conglomerates, which source labor and operate in markets around the world. (Experian isn’t even based in the United States, but in Ireland.)

CRAs play a crucial role in our ability to access even the basic requirements of life in our society. A survey by the Society for Human Resource Management found that almost 60% of its member employers used credit reports to screen applicants for at least some of their positions. Credit scores also frequently factor into insurance rates—approximately 92% of auto and home insurers rely on them, according to a survey in 2001. Alarmingly, hospitals have begun using credit scores to determine access to health care and to set costs. This chapter guides you through the consumer-reporting matrix, but also questions many of its basic assumptions and standard operating procedures. Decades of industry surveillance and control—often with government assistance or approval—have steadily transformed our culture, altering our values and behavior and generally instilling financial obedience.

Today, credit scores are treated as a measure not just of our creditworthiness but of our all-around personal integrity. Low scores virtually guarantee punishing credit terms and ruinous cycles of debt. And because someone won’t have a credit score unless they use credit, it penalizes people who do not use credit products. Hence, it gives a boost to the widespread use of credit and propagates debt relations. People no longer have a choice of whether to use credit or not. But even “good” behavior cannot guarantee high scores in our systematically flawed consumer reporting system. Financial surveillance is a corrupt and impersonal machine, not a system that genuinely determines people’s trustworthiness. Can’t make a credit card payment because of health costs this month? It’s recorded. Got laid off and couldn’t pay tuition? It’s recorded. Tried to pay a mortgage fee with an already low checking account balance? It’s recorded.

The fact that the credit reporting and scoring system is set up to maximize profits for the corporations involved instead of helping consumers is leading more and more people to consider alternatives. Thus, in addition to suggestions for individual “self-defense” and collective “harm reduction” in the context of the current credit regime, this chapter also offers ideas for moving outside or beyond it.

The CRA Industry

Operating much like a typical oligopoly, credit reporting in the United States has long been dominated by the Big Three of Equifax, TransUnion, and Experian—with combined revenue of more than $6.7 billion in 2009. More recently, two different firms—Innovis and CoreLogic—have been given the distinction of the “fourth” CRA. Collecting “supplementary credit information,” they represent the biggest “specialty” CRAs, companies which compile reports about much more than credit history—for example, medical history, employment history, rental history, checking account history, auto and property insurance claims, and utility bill accounts. These other non-credit reports are proving to be just as influential as credit reports; yet, even less is known about specialty CRAs than about the notoriously obscure Big Three, not to mention the shadowy connections between them.

CRAs started in the 1950s as regionally based companies that would track the publicly available details of your life—when you got married, if you got a speeding ticket, or if you committed a crime. CRAs persistently drew criticism for mishandling data and violating privacy; protest grew more intense and organized over the course of the 1960s. There was mounting evidence that credit files were riddled with errors and that they were being sold indiscriminately, to practically anyone who requested them. Columbia University professor Alan Westin became a vocal critic of industry practices after reviewing a sample of files from Equifax, which at the time went by the name Retail Credit Company. According to an article he wrote in 1970, Westin discovered “‘facts, statistics, inaccuracies and rumors’…about virtually every phase of a person’s life; his [sic] marital troubles, jobs, school history, childhood, sex life, and political activities.” The looming computerization of credit files, which were increasingly concentrated in the databases of a few newly “national” CRAs (or NCRAs), led to the 1970 passage of the Fair Credit Reporting Act (FCRA). Setting regulations on the collection, dissemination, and use of consumer data, the FCRA was the first federal law to implement privacy protections in the private sector in the United States (Jentzsch 2007, 122).

The expansion of retail credit and major innovations in informational technology led to a consolidation of the industry in the early 1970s, which meant data became shared across industries. (Up to that point, companies could only compile information about a particular type of credit, like your regional banking history or your mortgage.) CRAs saw rapid growth in the 1970s and 1980s with the proliferation of bank credit cards, and in the 1990s with the automation of mortgage underwriting.

Today, each of the Big Three has credit files on over 200 million adults and receives information from approximately ten thousand furnishers of data, including banks and finance companies. Every month, furnishers report on over one billion consumer credit accounts and other types of accounts.

The informational structure generated by consumer reporting is the basis of today’s credit-oriented consumer economy and a primary means of statistically defining and differentiating the population. Its networks span financial service providers, retailers, insurers, telecom and utility providers, and transportation companies. This data is increasingly used to determine our access to the basic necessities of life. Landlords use credit reports and scores for screening rental applicants, as do employers for job applicants.

A tremendous amount of power over the daily lives of people is given to profit-driven entities that, until recently, operated almost entirely outside of public oversight. In July 2012, the Consumer Financial Protection Bureau announced that it would become the sole federal regulator for thirty credit reporting agencies that account for 94% of the credit reporting market. (Previously, the industry was only subject to occasional congressional oversight and the restrictions of the FCRA.) But CRAs have already amassed huge amounts of sensitive data and their business is selling it as widely as possible.

Credit Reports and Credit Files

Credit reports are reports provided by CRAs to lenders and other users. They factor critically in decisions to grant credit—for example, mortgage loans, auto loans, credit cards, and private student loans—and in other financial spheres, including eligibility for rental housing, setting premiums for auto and homeowners insurance in some states, and job hiring. Consumer reports, which include other information in addition to credit activity, are reports by a CRA “bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.” They are used to determine a consumer’s eligibility for credit or insurance, for employment purposes, or for other purposes specified in the FCRA.

Credit reports are based on “credit files,” information about a consumer contained in the databases of the NCRAs. Credit files have some or all of the following components:

1. identifying information such as name (and other names previously used), current and former addresses, Social Security number, date of birth, and phone numbers;

2. trade lines (accounts) in a consumer’s name reported by creditors, including type of credit, credit limit or loan amount, account balance, payment history, delinquencies, collections, and dates of activity;

3. public record information of a financial nature, including bankruptcies, judgments, and state and federal tax liens;

4. third-party collections by debt buyers or collections agencies; and

5. inquiries in the last two years for employment-related uses and for at least the last year for credit uses and most non-employment uses (e.g., tenant screening, insurance, government benefits).

Examples of important information not contained in credit files include: income or asset data, credit terms such as interest rates, records of arrests and convictions (but specialty CRAs such as employment screening agencies include them), marriage records, adoptions, and records of civil suits that have not resulted in judgments.

Credit Scores

Credit scores are mathematical models that input a consumer’s bureau credit report and output a number that is called a “credit score.” The most common scores range from 300 to 850. The higher the number, the less likely a consumer is to default, hence making a better credit risk for the lender.

A credit score is used by a bank or financing company to decide whether to lend to someone, and at what interest rate. Because banks say that interest is charged partly to make up for the chance of default, people with lower credit scores end up paying higher interest rates. Usually, scores below 660 are considered “subprime,” and consumers with such scores will be denied credit or given credit on bad terms. Consumers with scores above 720 will get the best interest rates.

Banks use credit scores to make their lending decisions because the CRAs have a consumer’s entire credit report, including accounts from other banks. This gives more information than just the bank’s internal data. Banks also use credit scores because the ease of using the algorithm, or mathematical formula, allows banks to implement strategies quickly. The fact that a consumer is reduced to a three-digit number allows banks to pull large batches of credit scores and treat people based on that factor alone. However, for major lending decisions with high potential losses, such as a mortgage, banks will use additional factors, such as income verification, down payment amount, and an assessment of other debt obligations.

Types of credit scores

There are many variants of credit scores, making it difficult for a consumer to navigate them all. Credit scores have two main components: the data that goes into the score, and the scoring algorithm itself. Equifax, TransUnion, and Experian are the three main providers of data. There are many different providers for the scoring algorithm, the most famous being FICO, and the credit bureaus themselves. When you encounter a “credit score,” it is important to denote which bureau the data in the score came from and what algorithm is used. Different algorithms use different score ranges, which can further confuse consumers. Below, some common examples of scores are noted and explained.

FICO score

The FICO score’s range is 300–850, and the median score is about 720. Experts agree that if your score is above the median, you will have access to the best rates.

The FICO score is created by a publicly traded company called FICO (formerly known as Fair Isaac Corporation) founded in 1956. Because they have been around for so long and have patented their algorithms, FICO enjoys a near monopoly in credit scoring, boasting that an overwhelming majority of lending decisions in the United States are made using the FICO score.

FICO, as a company, does not own any data from which it creates the credit score. FICO is not a CRA; they only create statistical algorithms. FICO “borrows” data (through complicated contracts) from the bureaus for the sole purpose of creating the algorithm. This algorithm is then encoded into a black box and placed at each of the Big Three bureaus, none of which know the contents. When lending entities, such as banks or cell phone companies, want a FICO score, they ping an inquiry to the bureau with which they have a relationship. The bureau runs the person’s Social Security number to retrieve information from their database. That information goes through the black box algorithm, and out comes a score which the entity receives. The money made from that transaction is split between FICO and the bureau that provided the information.

Because there are three different bureaus that can provide information, there are three FICO scores. Because different banks use different bureaus, and some banks use all three, all three scores can affect lending decisions. What compounds the confusion is that FICO uses different branding with different bureaus, so the score names can vary. If you see that you received a BEACON score, it means that you received a score with a FICO algorithm and Equifax underlying data. “Classic” refers to TransUnion, and “Experian/FICO Risk Model” to Experian.

For each bureau, FICO creates other scores specially calibrated for different purposes, such as the Auto Industry Option FICO score. The algorithm in that score is customized to predict only default in autos, instead of default in any line of credit. When someone gets a car loan, they think they received a FICO score, but it most likely isn’t the one that would be used to give them a credit card or mortgage. Also, there is no way for the public to get these custom industry score options; only auto dealers with special contractual relationships can get these scores. Other specialty industry option scores include mortgage and bank card.

Finally, because FICO has been making scores for decades, there are many different versions of the same type of algorithm. The newest algorithm is called FICO8, but many banks still use an older version. Consequently, two different banks may pull the same FICO score type from the same bureau, and still get different scores.

There are approximately fifty different FICO branded scores a consumer can have. FICO allows you to check your general FICO8 score for all three bureaus on myFICO.com for a hefty fee of approximately $60. The only other option is to get the score from your lender.

VantageScore

Experian, Equifax, and TransUnion got together and developed the VantageScore algorithm as a response to the FICO score. Its current range is 300–850, although it used to be 501–990. They own their own data and don’t have to share revenue with FICO for the score. FICO still dominates the space of scores that are used for lending decisions, but the VantageScore is often used by companies—such as Fitch and Standard & Poor’s—to assess portfolio risk, since this score is cheaper. Due to differences in algorithms, VantageScore and the FICO score can differ quite dramatically for certain people.

TransUnion and Experian offer their VantageScore to consumers through their websites for a fee. Credit Karma also offers the TransUnion VantageScore for a fee, but it doesn’t have to be paid if the subscription is canceled within seven days. There is no way for a consumer to get the Equifax VantageScore.

Credit scores marketed to consumers

Although savvy consumers can find their FICO scores and VantageScores, they are not marketed to consumers. Because FICO’s primary focus has been on servicing banks and maintaining their monopoly position in the lending space, they have not spent the time or money necessary to market their scores to consumers. FICO’s consumer-facing site, myFICO.com, is rarely advertised.

That hole has been filled by dubious consumer-facing offerings from the credit bureaus themselves and other entrepreneurs. These offerings profit from confusing people about credit scores and propagating the myth of a “single credit score,” so that the public will buy the score. Almost all of the scores marketed to consumers are not used in lending decisions. Lending decisions are almost exclusively made using the FICO algorithm, and some may be made using the VantageScore. Rent decisions, however, are often made using the scores outlined below.

If you read the fine print in these consumer offerings, you will find excerpts such as, “The PLUS score is derived from information based on a credit report, using a similar formula to those used by lenders.” These made-for-consumer scores are called “educational” credit scores, meaning that they aren’t actually the algorithms used in credit decisions, but instead are meant to just “educate” people. These “educational” scores are often created and distributed by the bureaus themselves—like Experian’s freecreditreport.com—or sold to other companies like creditkarma.com or creditsesame.com. It makes financial sense for these companies to buy data from the bureaus and give it away for free to consumers because they make money from credit card companies who pay for credit card leads obtained from their site. There are also many affiliate sites that give a “free” score only to monetize it in credit card offers.

Some common “educational” credit scores include:

• PLUS score

  • Range: 330–830

  • Created by Experian using Experian data

  • Found on freecreditreport.com

• TransRisk score

  • Range: 300–850

  • Created by TransUnion using TransUnion data

  • Found on creditkarma.com

• National Equivalency Score

  • Range: 360–840

  • Created by Experian using Experian data

  • Found on creditsesame.com

• CE score

  • Range: 350–850

  • Created by CE Analytics using Experian data

  • Found on quizzle.com

Factors in scoring algorithm

Only information that can be found in a bureau credit report or in public records can go into the scoring algorithm. Even though we can’t control how the algorithms are constructed, we can take steps to make sure that the underlying information is correct by reviewing all three bureaus’ reports.

Characteristics that are not allowed to be used in the scoring algorithm include age, geographical location, race, and income or any other employment information. Interest rates that you are currently charged also can’t be used in the algorithm. Even though these factors don’t come in directly, they can be correlated with other factors that do. For example, age doesn’t go into the score, but credit history length does. Since many people get their first credit card around eighteen years of age, this statistic is highly correlated with age.

Below are the factors that make up most scoring algorithms. The percentages indicate the weight to that attribute given by the FICO scoring algorithm. VantageScore uses similar attributes and weights. The scoring algorithms reward behavior that uses a lot of credit “responsibly” (e.g., making all scheduled minimum payments), and penalize people for not using credit or using credit but missing payments.

Length of credit history (15%)

Your credit history is usually calculated as beginning with your oldest loan or credit card. Hence, many websites say that it is better if you refrain from closing the oldest cards you have. How long it’s been since you last used your accounts is also factored into this portion of the score. Also, the average age of your accounts is considered, so opening new accounts can lower the score.

Payment history (35%)

Payment history information includes details on how payments were made on existing accounts. Late or missed payments (delinquencies) and collection items will severely hurt your score. The more “good” accounts with no late or delinquent payments there are, the better the score. To have a good payment history, you only need to have made the minimum payments on time. There isn’t a negative impact on this portion of the score from just paying the minimum, although there may be adverse effects if you retain a high utilization (see below). Also, if you only pay the minimum, there are negative effects from paying a lot to the credit card companies in interest and fees.

Utilization (30%)

Utilization is how much of your credit limit you are using. For example, if your credit limit is $10,000 and your balance is $3,000, your utilization is $3,000 / $10,000 = 30%. Utilization can be calculated for each card and over all cards. As a rule of thumb, it’s best to use less than 25% of your overall limit, and less than 25% each card’s limit. Many people have a few cards, but use only one; it’s better to use all your cards a little bit. Asking for an increase in limit while spending the same amount on the card would help your score as well.

The scoring algorithms usually don’t take into account whether the balance is “transacted” (paid off in full) or “revolved” (interest paid on a balance that remains). The credit scoring algorithms only take into account the balance and the credit limit, but it is better to transact balances because fewer fees are paid to the predatory credit card issuers. If you have a $5,000 credit limit and you spend $5,000 on your card and pay it off every month, it will be just as detrimental to your score as having a $5,000 balance the entire time on which you pay off only the interest every month. If you pay off your card every time you spend $1,000, and never leave a balance over $1,000, you will dramatically increase your score

Although lower utilization is generally better, there is one exception: 0% utilization. One way to boost your score is to take any credit cards that aren’t being used and put a monthly bill and an automatic payment on them. This way, it’ll look like the card is being used, and used “responsibly.” If you’ve already set up a bill to be paid via automatic withdrawal from your bank account, instead set it to automatically withdraw from your card, and then have your card automatically paid from your bank account. Utilization of installment loans, which is how much of the loan has been paid off, may also be considered in this portion of the score.

Mix of credit (10%)

From the viewpoint of credit scoring algorithms, having both installment loans (a fixed loan such as a car, student, or mortgage loan) and revolving loans (a credit card or retail card) is best. People with the best credit scores have at least a couple of credit cards and at least one installment loan that is being regularly paid off.

This is yet another part of the credit score that benefits the use of credit and thus promotes debt. Someone who doesn’t have student loans or a mortgage and pays for their car with cash will have a lower score than if they had financed the car and paid it off every month. Also, if someone doesn’t use credit cards, they will have a lower score.

Inquiries (10%)

Inquiries are recorded as “credit pulls” when a bank or other institution looks up the borrower’s score or credit report. There are “soft” and “hard” credit pulls. When you are seeking a loan for a car, mortgage, student loan, home equity line of credit, credit card, or other credit products, it counts as a “hard” credit pull and will affect your score. Personal pulls on credit websites or for rental purposes count as a “soft” inquiry and will not affect your score at all. Another example of a “soft” inquiry is one done by lenders in order to pre-approve credit card offers or evaluate portfolio risk. However, once you fill out a credit application from the offer you received in the mail, you will get a “hard” inquiry on your credit report.

Inquiries remain on the record for twenty-four months, but the FICO score algorithm only considers the last twelve months of inquiries. Large amounts of inquiries will hurt your score a lot more than just one. However, FICO counts several inquiries for the same type of loan as one inquiry, as long as they were all made in a relatively brief period of time. This is not the case for credit cards, where every inquiry counts.

Unscoreable populations

People who don’t have a score are referred to in the industry as “unscoreable.” Estimates put the unscoreable U.S. population at twenty-seven to thirty million. There are two primary reasons why someone would be unscoreable. The first is that they have never used a credit product and hence do not have a credit report. The second is that they have a credit report, but there is not enough information in the report to make a score, such as someone who has only one credit card and no other credit. Unscoreable people are often young, recent immigrants, people who have declared bankruptcy, or “unbanked” people (see Chapters Seven and Eight). There are many businesses springing up to create scores for these populations based on information other than credit history—like rental information or cell phone payments—but there is no standard yet used by lenders. Being “unscoreable” puts many people in a catch-22 situation, where they are denied credit and hence can’t build credit.

Problems with Credit Scores

Credit scores are created by for-profit institutions whose mission is to maximize profits. The data and the algorithm that go into the score are managed by opaque, unwieldy institutions. A 2004 study revealed that 79% of credit reports contained errors; 25% of these mistakes were serious enough to result in a credit denial. More than half of all credit reports contained outdated information or information belonging to someone else. You might think that because the rich use credit so much more, they’d be the ones mainly affected by these errors. In actuality, the poorer you are, the more likely your credit agency is to make a mistake that influences your rating. There is no accountability or transparency for the CRAs and no incentive for them to provide accurate information.

There are also problems with FICO, a for-profit institution, creating algorithms. Because an algorithm is just a mathematical formula, FICO has to use restrictive patents so it can make money from the algorithm. No one can know the formula, lest they replicate it, causing FICO to lose profits. Hence, it is in FICO’s best interest to keep it secret. When individuals are told “their scores,” these usually aren’t the FICO scores that are used in most lending decisions. It’s in the score-providers’s interest to obfuscate this fact so that consumers continue to buy their scores.

Besides the fact that the algorithm created for a profit, there are methodological issues. First, the model omits variables that are critical to repaying debts on time, such as income, assets, and credit terms. The model also assumes that borrowers are “statistically independent” of one another, meaning that one’s default depends only on one’s individual characteristics and is unaffected by the defaults of others. However, defaults are often strongly correlated (e.g., a foreclosure depresses housing values across a neighborhood, making property owners de facto poorer, which increases the probability of further foreclosures). Finally, the model assumes that consumers’ riskiness or creditworthiness determines their credit scores. But in practice, low scores result in worse loan conditions that in turn increase their riskiness. Thus, the credit score functions more like a self-fulfilling prophecy than an “objective” prediction.

As with other components of the debt system, credit scoring negatively impacts people of color at a disproportionate rate. About 42% of Latino/as and nearly half of Black people in the United States have credit scores under 660, compared to just under 20% for Whites. While the median credit score for Whites rose from 727 to 738 during the 1990s, it decreased for Blacks from 693 to 676, and for Latino/as from 695 to 670. Just like the racial wealth gap (see Introduction), the racial gap in credit scores has worsened, not improved, over recent decades.

Finally, misuse of credit scores is now rampant. Using them to determine access to housing, employment, or health care is absolutely deplorable, even more misguided and harmful than using them to determine simple access to credit. These decisions have grave consequences for people’s lives; housing, health care, and the means of subsistence are fundamental human needs that should be available to all, not granted or withheld based on a person’s credit history.

Some things we can do

1. Check our reports. We can change this system, but we have to know it first. To receive a copy of your credit report, go to Annualcreditreport.com or call 877-322-8228. Complete the Annual Credit Report Request Form and mail it to:
   
   Annual Credit Report Service
   P.O. Box 105281
   Atlanta, GA 30348-5281
   
   In order to receive your free report, you’ll need to provide your name, address, Social Security number, and date of birth. You may need to give your previous address if you’ve moved in the past two years. For security reasons, you may also have to give additional information like an account or a monthly payment you make. Beware of anyone charging you to get your report or signing you up for “free” services in order to access it. And beware of anyone offering to help improve your credit score; there is nothing they can do that you can’t do more effectively for free.

2. Demand accuracy. There are laws that protect debtors from unfair and inaccurate credit score practices: the Truth in Lending Act, Fair Credit Reporting Act, Fair Credit Billing Act, and Equal Credit Opportunity Act. All guarantee protection and the possibility for citizen-directed credit scoring and reporting.

3. Demand accountability. The Consumer Financial Protection Bureau is now an operating governmental body. We should ask if it’s doing its job when it comes to regulating credit scoring, and if it can do more.

4. Demand regulation. Seven EU countries and seventeen Latin American countries have public credit scoring agencies. Why don’t we? Ultimately, we would prefer to get rid of credit scores altogether, but in the meantime we must at the very least remove the profit motive from a system that plays such a vital role in determining our access to the means to live.

5. Reject the system. It is possible to live without a good credit score. If you can muster the time and energy to make some life changes, you can go totally “off-grid” (see Chapter Eleven). Below are some recommendations on how to live without the benefits of a good credit score:

1. • Prepaid cell phones are always an option.

   • For housing utilities, if you have roommates, you can ask them to put the accounts in their names. If you live alone, ask a relative or friend.

   • Create your own credit report. Put together a portfolio showing that you are a trustworthy person (reference letters, job history, life narrative).

   • Check listings for housing, cars, and other necessities that are informal and don’t go through brokers or other formal agencies.

   • Offer to put down larger deposits in lieu of a credit check.

   • Build networks of mutual support in your community so you can rely less on outside services.

DIY credit repair

To repair an error on your credit report, it is best to do it yourself. This helps you avoid scams and fly under the radar of the CRAs who are looking to block credit repair companies from gaming their system. There are many books, websites, articles, and other resources dealing with this issue. Below are the steps we recommend:

1. Get a copy of all three of your credit reports.

2. Review your credit reports and note every single error. Note incorrect spellings of your name, inaccurate data, and any “derogatory” information.

3. Write letters to the corresponding agencies disputing negative information and errors.

4. Describe in your letter how you found out your credit was bad and how shocked you were at all of the errors the agencies have been reporting. Then ask them, “per the Fair Credit Reporting Act (FCRA) enacted by Congress in 1970,” to either provide documented proof of their claims or delete the mistakes immediately. Include your name, current address, and Social Security number on your letter. You should not include any additional information. Simply list the entry that you are challenging and briefly explain why you are challenging it. You only need to write a couple of words to do this—less is more. Say things like, “This is not mine” or “This record is inaccurate.” Be sure to make the letter sound unique to you. If you do not, you may find that the CRA responds by saying that your claim is “frivolous.” This is how they typically respond to credit repair companies, and why you should not use them. There are competing theories on whether or not you should challenge everything on your report all at once. You are legally entitled to have each item you challenge verified at any point in time. When sending your letter, request a “return receipt” or “delivery confirmation.” The CRA has thirty days to respond to your dispute. If they do not respond within that time frame, you will have evidence that they are in violation of the Fair Credit Reporting Act. Don’t give up after the first round. Within a month, you will likely receive a response from the CRAs. Typically, they will only state whether or not they were able to verify an item. For any items they claim to have verified, you should contact the creditor directly and demand that they provide proof that the debt is yours. You can also continue to challenge the entry with the CRA.

If you play this game, there’s a good chance you could eventually win. Keep hammering them with letters demanding they correct their mistakes. They may eventually get sick of your letters and start deleting negative trade lines from your report. You will likely be writing letters for six months to a year, but you should see a substantial improvement in your credit report and score within three months. As usual, the person who yells the loudest for the longest wins. And don’t forget, repairing your credit score isn’t about regaining validity in the eyes of the system: it’s about challenging an exclusionary and unjust surveillance machine.

Consumer Reporting Agencies for Checking Accounts

The credit score is an essential piece of economic surveillance, but it’s not the only one. There are other ways of watching us and keeping us in line. Many people, for example, have a checking account. Just as a series of private corporations monitor your borrowing activity in the economy, a different group of private corporations monitors your checking account. And just as credit score companies make a profit from calculating your score, consumer reporting agencies that monitor checking accounts make a killing when you overdraft or miss a payment.

ChexSystems and TeleCheck are two examples. Usually banks are very private about their own information, especially checking accounts, but in the interest of “preventing fraudulent activity,” financial institutions report instances of “account mishandling” to these agencies. TeleCheck primarily deals with bad check-writing while ChexSystems, used by over 80% of banks in the United States, deals with that and more: “non-sufficient funds” (NSF), overdrafts, fraud, suspected fraud, and account abuse. Retailers report bad checks to Shared Check Authorization Networks (SCAN), which in turn report to ChexSystems. When someone tries to open an account elsewhere, the agency notifies the institution about that applicant’s history.

ChexSystems, unlike credit bureaus, only provides negative information in their reports. Therefore, a single banking error can result in losing an account and could mean immense difficulty trying to open one elsewhere. Once in their systems, it is extremely difficult to get out, even if you ended up there in error. Something as inconsequential as failing to rectify a deliberately confusing overdraft fee may be enough to negate decades worth of “responsible” banking.

There are some steps that can be taken to avoid triggering a ChexSystems or TeleCheck report in the first place. Know your balance before writing checks to make sure they won’t bounce. And if your checkbook ever gets stolen, report it to your bank or credit union immediately. When you are closing an account, be sure to discontinue all automatic payments, wait until you’re certain that all checks you’ve written have cleared, and formally close the account instead of simply taking all of your money out.

Regardless of your checking account history, you are entitled to a free copy of your ChexSystems or TeleCheck report every twelve months. If you are denied a checking account because of your report, you are entitled to a free copy within sixty days from the CRA that is responsible. To request a copy of your report, go to consumerdebit.com for ChexSystems or firstdata.com for TeleCheck.

If the agency refuses to provide you with a copy of your report or you fail to receive it within sixty days of being denied an account, you can submit a complaint to the Federal Trade Commission (FTC) at ftccomplaintassistant.gov. Then send a letter via certified mail to ChexSystems or TeleCheck notifying them that they are in violation of the Fair Credit Reporting Act and that they have fifteen days to send you a copy of your report. Let them know that you are willing to pursue legal action and that you have already contacted the FTC. (See Appendix B for sample letters.)

If you are unable to open a checking account because of a negative report from one of these agencies, there are several possible courses of action. You can dispute your checking account report. For information on doing this, visit the website chexsystemsvictims.com. Another approach is to open an account at a financial institution that does not use ChexSystems or TeleCheck. A state-by-state directory is available at nochexbanks.org. In addition, in some states you can take a six-hour “Get Checking” course, upon completion of which you can open an account at a participating financial institution. But there is a $50 course fee, and guess who sponsors the program—a parent corporation of ChexSystems by the name of eFunds. The final option is to try to live without an account. As Chapter Eleven will illustrate, this can be difficult, but many people have no option but to survive “unbanked.”

Resources

Websites

• ChexSystems Victims

• National Consumer Law Center: Credit Reports

• Privacy Rights Clearinghouse: Credit and Credit Reports

• Kelly Gates, “The Securitization of Financial Identity and the Expansion of the Consumer Credit Industry,” Journal of Communication Inquiry 34, no. 4 (2010), 417–31.

• “Information on Free Credit Reports,” NEDAP.

• Mark Kantrowitz, “Credit Scores,” FinAid!, 2012.

• Chi Chi Wu, “Automated Injustice: How a Mechanized Dispute System Frustrates Consumers Seeking to Fix Errors in Their Credit Reports,” National Consumer Law Center,

References

• Berger, Rob. “ChexSystems: The Banks’ Secret Watch Dog Is Watching You.” Dough Roller, June 18, 2011.

• Berner, Robert, and Chad Terhune. “Hospitals X-Ray Patient Credit Scores.” Business Week, November 19, 2008.

• Board of Governors of the Federal Reserve System. Report to Congress on Credit Scoring and Its Effect on the Availability and Affordability of Credit. Washington, DC: GPO, 2007.

• Calem, Paul S., and Michael LaCour-Little. “Risk-Based Capital Requirements for Mortgage Loans.” Federal Reserve Board, November 2001.

• Consumer Financial Protection Bureau. “Key Dimensions and Processes in the U.S. Credit Reporting System: A Review of How the Nation’s Largest Credit Bureaus Manage Consumer Data.” December 2012.

• Credit Karma. “Credit Card Utilization and Average Credit Scores.” January 2, 2009.

• “Credit Reporting Agencies.” Title 15 U.S. Code, Sec. 1681. 2010.

• Dratch, Dana. “Taking a Look at ‘Good’ Credit.” Bankrate, June 9, 2008.

• Elmer, Vickie. “U.S. Consumer Watchdog to Oversee Credit Bureaus.” New York Times, July 16, 2012.

• Fair Isaac Corporation. “Understanding Your FICO Score.” myFICO, 2011.

• Fremstad, Shawn, and Amy Traub. “Discrediting America: The Urgent Need to Reform the Nation’s Credit Reporting Industry.” Dēmos, 2011.

• Gale Group. “Credit Reporting Services Market Report.” Highbeam Business. Accessed July 12, 2013.

• Garfinkel, Simson. “Separating Equifax from Fiction.” Wired, September 1995.

• Grow, Brian, and Pallavi Gogoi. “Insurance: A New Way to Squeeze the Weak?” Business Week, January 27, 2002.

• Jentzsch, Nicola. Financial Privacy: An International Comparison of Credit Reporting Systems. New York: Springer, 2007.

• Löffler, Gunter. “The Effects of Estimation Error on Measures of Portfolio Credit Risk.” Journal of Banking and Finance 27, no. 8, (2003): 1427–1453.

• Privacy Rights Clearinghouse. “‘Other’ Consumer Reports: What You Should Know about ‘Specialty’ Reports.” June 2013.

• Rona-Tas, Akos, and Stefanie Hiß. “Consumer and Corporate Credit Ratings and the Subprime Crisis in the U.S. with Some Lessons for Germany.” SCHUFA, September 2008.

• Society for Human Resource Management. “SHRM Research Spotlight: Credit Background Checks.” September 2010.

• Taylor, Don. “Negative ChexSystems Report Nixes Account.” Bankrate, March 8, 2006.

• Ulzheimer, John. “Scores, Scores, and More Scores: How Many FICO Scores Do You Have?” Credit Sesame, August 27, 2012.

• Wilson, Cheryl. “VantageScore 3.0 Promises a Better Picture of Previously ‘Unscoreable’ Individuals.” PR Web, April 11, 2013.

• Wozniacka, Malgorzata, and Snigdha Sen. “Credit Scores: What You Should Know about Your Own.” PBS Frontline, November 23, 2004.

• Wu, Chi Chi, and Birny Birnbaum. “Credit Scoring and Insurance: Costing Consumers Billions and Perpetuating the Economic Racial Divide.” National Consumer Law Center and Center for Economic Justice, June 2007

• SEE https://strikedebt.org/drom/chapter-one/