Are the Credit Reporting Agencies Treating You Fairly?

There are a multitude of consumer advocate groups up in arms about the way in which the three credit reporting agencies, TransUnion, Equifax and Experian are rating consumers’ ability to pay future debts. It all ties into the new laws pertaining to credit cards and the ways in which those agencies are allowed to rate your income.

According to Liz Weston writing for MSM Money, lenders are now using a new ‘secret’ way to evaluate your creditworthiness, the income estimation model. In fact, there are more than one model for estimating consumers’ incomes as all three of the credit reporting agencies use their own version. This is significant because lenders not only look at your credit history, but how you can be expected to pay further credit. In other words, they look at your income.

However, the problem with this is that the credit bureaus are not required to actually report your creditworthiness based on reported wages. They make their own models based on certain criteria such as how you have paid your bills in the past, the amount of outstanding credit and then they come up with some kind of calculation that will project how much more money you could feasibly borrow and still be able to make the payments on. In fact, you are not even required to report how much money you actually make.

Unless they can get this information from the Internal Revenue Service (you would need to give permission) they have no way of knowing what you make which is why many decisions are based on your history of making payments. Lenders figure if you have been paying your bills on time then obviously you are making enough money and if you have been paying them steadily, then you are probably creditworthy for future loans.

In addition to these unfair methods of evaluating your creditworthiness based on the amount of money the reporting agencies ‘feel’ you are making, they will not provide your actual wages to lenders unless they pay for them. Now consumers are getting what amounts to a double whammy because lenders are not apt to pay extra for the information on your actual income. Instead they will simply base their decision on what the reporting agencies tell them your creditworthiness is for future loans.

When it comes to your credit score, there are certain things which won’t actually count for or against you. While these things may matter to a lender, they are not allowed to base your score on the length of time you were on your job, how much money you make, whether you have been refused credit, how long you have lived at your current address, and whether or not you own your home.

It’s amazing how all this adds up to the fact that lenders can pretty much do what they want when it comes to approving new loans. You could have an exemplary credit history but if the reporting agencies say you are not creditworthy then you may lose the loan. You might only make $8 an hour and be in debt over your head but if you have found a way to pay your bills on time a lender might grant you a loan for $100k.

Because of all these inadequacies in the reporting and decision making processes, consumer advocate groups are calling for tighter reins on the ways in which consumers are evaluated. In the meantime, it is vitally important to monitor your credit report, get a copy of your credit score and make sure that all information is as accurate as possible. Since this is all that a lender has to go on, you want your credit report to shed the best possible light on your ability to pay a loan.

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