Credit bureaus know a lot about Americans. The agencies accumulate information, such as social security numbers, birthdays, how much people have saved, how much they owe and how late they pay their bills.
This data boils down to a number ranging from 350 to 800 that estimates the risk of lending someone money. It can determine the interest rates they pay and whether or not they get credit.
So, who owns your credit score and all the granular personal data associated with it?
You might be surprised to find out it’s not you. You might be even more surprised to find that the data is often wrong, especially since the pandemic — and that it’s being used in more places for more purposes than ever before.
This spring, credit scoring giant Equifax sent incorrect credit scores to banks and other lenders for potentially hundreds of thousands of customers, the company revealed last week. Equifax said a significant number – less than 300,000 people – saw their credit rating change by 25 points or more due to the error. This is more than enough for some people to be denied a loan that should have been granted to them.
That infuriated Massachusetts Senator Elizabeth Warren, who has long criticized the banking industry. In a statement to CNN Business, Warren called the errors “outrageous. Equifax needs to make it clear who was affected and how it happened, and the company needs to help consumers who have been defrauded.”
Equifax revealed the most recent error after a Wall Street Journal investigation earlier this month and issues reported by National Mortgage Professional magazine.
If the company’s name sounds familiar, in September 2017 Equifax revealed that hackers had exploited a security flaw in its system to gain access to the company’s customer data. The data covered up to 145 million people, or about half of the adults in America.
Now some critics argue that the entire national credit reporting system is simply flawed.
Equifax is one of three major publicly traded credit bureaus in the United States, the others being TransAmerica and Experian, which compile consumer behavior data and sell it to financial institutions.
But more than 50 small, specialized agencies have sprung up, which provide this data to potential employees, tenants and utility customers.
Credit data is being used more broadly than it was initially, consumer watchdog groups warn, sometimes quite carelessly. The data of several people with the same name is often provided to a rental agency.
The Consumer Financial Protection Board received 700,000 complaints against the three largest credit reporting agencies between January 2020 and September 2021.
More than 60% of all complaints in 2021 were related to consumers reporting incorrect information on their report.
The errors are so numerous that in 2019, current Equifax CEO Mark Begor told the New York Times that when he first checked his own Equifax credit report, it showed that he bought a vacuum cleaner he didn’t own, cell phone service he didn’t sign up for, and a credit card he didn’t have.
He wasn’t alone: Last year, Consumer Reports magazine asked nearly 6,000 consumers to check their credit scores and report. Just over a third said they found at least one error.
For these reasons, some experts suggest more regulation or a public credit agency that does not attempt to profit from personal data.
In a study of credit reports and their use for non-credit purposes, Chi Chi Wu, an attorney at the National Consumer Law Center, warns that there has been a “creeping mission” to the extent to which the data is used.
Some vital services like gas, water, or electric utilities use credit scores to determine whether to require a security deposit from a customer, for example.
Credit scores can be predictive of consumer shopping behavior, but misleading as to whether people will make good renters or pay crucial bills like utilities on time.
“Credit ratings are increasingly being used as a measure of character, when sometimes it’s just luck,” Wu said.
The pandemic has called into question the reliability of the data. Credit scores often don’t tell a person’s whole story, said Michael Pugh, president and CEO of Carver Bank, a New York City bank headquartered in Harlem.
Just before the pandemic began, he said, Carver Bank provided a loan to an equipment repair business that had decided to expand into the installation business.
“They had already hired new employees and purchased additional equipment when they suddenly had to close the business. [because of Covid]“, Pugh said in an email.
Over time, the company’s credit rating plummeted as it depleted savings, increased credit card use, and took longer to pay bills. Carver continued to extend credit and accept late payments. “They came out stronger on the other side,” he said, but a credit report could take a long time to catch up. The installation company was lucky that their bank was flexible – many other companies were not.
Credit reports are being used more and more now, Wu said, because some people think they eliminate discrimination — “thinking it’s a number, it’s just a computer program — but [discrimination] is baked into the algorithm,” Wu said.
And there are serious disparities in credit rating by race. An Urban Institute report analyzing data from Freddie Mac in 2016 found that more than 50% of white households had credit scores above 700, compared to just 21% of black households. That gap has narrowed in the five years since this study recently reported by the Institute, but for Native American groups in particular, the disparity remains significant.
How can such a flawed system be so powerful?
There’s no legal way to opt out of the powerful digital image of you that the credit reporting agencies are painting. An Equifax executive testified before the Senate Commerce Committee in 2017 that Equifax has the consumer data and its analysis of it and that “it’s part of how the economy works.”
But, Wu said, “one of the reasons why [errors] keep happening is that they can get away with it – they’re an oligopoly, you can’t choose between them like you can with mobile operators. If you want credit, you have to deal with these three agencies.
Regarding recent incorrect data released by Equifax, unless you applied for a loan, credit card, or other financial products in a March 17-April 6 window when they had errors coding on a server, it’s hard to tell if you’ve been affected by Equifax’s grading errors. So far.
What are consumer rights? The right to know what’s in their file. All consumers are entitled to free annual disclosure upon request to each of the national credit bureaus, the CFPB says. If there are any errors, dispute them both over the phone and in writing – but be aware that there is a delay in dealing with such complaints.
In the meantime, while consumers may have limited rights related to the data itself, there are ways to improve your credit score. Consumer advocates advise always paying bills on time, especially mortgages and credit cards, as banks and home lenders report to credit agencies immediately.
And be sure to check your report for a vacuum you never bought.