The credit bureaus aren’t who you think they are

React to the following statement: You need good credit.

You may have thought “sure” or “true dat” or “nah”. But do you understand exactly why you reacted as you did? Are you just regurgitating something you’ve heard, or have you taken time to consider this question in the past? I’ve studied money for nearly two decades and can tell you that the campaign for healthy credit, isn’t exactly what you think it is.

I’m not much of a conspiracy theorist, but i certainly do love a good conspiracy theory. That’s not to suggest that a true conspiracy is at work here. Yet, in the spirit of full disclosure, I may come-off as a raging lunatic during this particular post.

Flat out, I believe the campaign for healthy credit is a marketing strategy perpetuated by the credit bureaus and banks. Healthy credit is the false aim, yet debt is the result. But here’s the crazy part: I don’t blame the credit bureaus or banks for our willingness to along with their marketing genius.

The credit bureaus (Equifax, Experian, and TransUnion), you know, the ones that you thought were some sort of governmental agency, are for-profit companies. To be frank, bureau is a pretty good term to use when you want someone to think you are part of the government or some sort of quasi-governmental agency. But alas, they are a for-profit company with shareholders. Wait until I tell you who owns TransUnion. More on that later.

For-profit companies must remain relevant in order to remain profitable. You’ll notice that typewriter companies aren’t too profitable these days. Therefore the for-profit credit bureaus must remain very important to consumers. They need to market and sell credit monitoring and identity theft protect, as well as arbitrary scores to consumers. We obsess over our credit scores. We wear them like a medal of honor, proud of our ability to climb a fictitious number scale.

A credit score, or good credit for that matter, is a metric which measures how good you are at borrowing money. Do you want to be good at borrowing? Probably, most people do. But step-back from that question and remove a few words. Do you want to borrow? The correct answer here is no. Unless you’re borrowing money, leveraging it, and using it to make more money, the way businesses do, then you don’t really want to borrow. The campaign for healthy credit has influenced us to believe that borrowing the money is not only the norm, but also healthy.

What prompted this tin-foil hat rant? When Anthem got hacked, and 80 million people had their credit compromised, those 80 million victims collectively freaked-out about freezing their credit. When our credit is not frozen, we have spontaneous reign over our credit. We can open a credit line on a whim, as we often do. But when we freeze our credit, the default attitude transitions into “I’m not going to borrow.” In order to borrow when your credit is frozen, you most proactively unfreeze it. Having frozen credit is 100 times healthier and smarter than having unfrozen credit. Credit bureaus really don’t like when you freeze your credit, because you take away their power of your borrowing habits. You take back control of your financial life when you freeze your credit.

As you’re reading this, you’re undoubtedly trying to discredit my assertion. “There’s nothing wrong with borrowing money, Pete,” you’re thinking. Okay. Would you rather owe someone money or not owe someone money? The answer is you would rather not owe someone money. Therefore not being in debt is better than being in debt. Yet every single marketing message you hear, from credit card companies, to car dealerships, to furniture stores, tells you that not only is it okay if you have debt, but now it doesn’t even matter if you aren’t good at borrowing money. Now bad credit doesn’t even matter, because the aim isn’t good credit, the aim is debt.

“Bad credit, no credit, it doesn’t matter…” the commercials blare. Why do they say that? Because the goal is to sell you something, regardless of your ability to afford it. Frankly, it’s a bit more honest than the healthy credit movement.

Yes, I realize that good credit gets us better rates on loans and insurance premiums, but that’s all part of the okey doke in the modern age of credit. There’s a sandwich place near my office that has a loyalty and frequent customer program. Every time I buy a sandwich, they punch my card. Once I’ve gotten really good at buying their sandwiches, they reward me with another sandwich. Frankly, our credit scores aren’t really that different. Some people view sandwich loyalty programs as a way to get a free sandwich. I view them as a means to sell more sandwiches. So when I complain about credit card point and credit scores, I’m complaining about how these incentive programs induce unnecessary debt.

Allow me to introduce you to the credit bureaus. They wield great power.

Equifax (EFX)

Equifax’s stock price is over 400% higher than it was in March of 2009, while consumer debt has stayed mainly stagnant over the same time frame. As NerdWallet points out, the largest decline in debt levels of this period is when banks wrote-off debt (people didn’t pay it back). Equifax’s website states: Equifax creates and delivers unparalleled customized insights that enrich both the performance of businesses and the lives of consumers through the comprehensive and differentiated data it manages, the expertise in advanced analytics it provides, the state-of-the-industry solutions it develops, and the leading-edge proprietary technology through which the solutions are delivered. 

I don’t know about you, but these statistics indicate to me that the businesses using Equifax’s services, benefit more than the consumers do. Equifax provides a means to help businesses get people to borrow more money. Screen Shot 2015-02-09 at 7.16.05 PM

 

Experian (EXPN.L)

Experian’s corporate headquarters is in Dublin, Ireland. It’s stock trades on the London Stock Exchange and is trading over 300% higher than it was in March 2009. Their website states: We are the leading global information services company, providing data and analytical tools to our clients around the world. We help businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. Again, their words not mine, their primary focus is on helping businesses, not consumers. Screen Shot 2015-02-09 at 7.26.33 PM

TransUnion (Privately held)

TransUnion is owned by, wait for it, Goldman Sachs. They were purchased for $3 billion in 2012. Since they are privately held, charts and data are a bit more difficult to come by. Although they did report nearly a 14% increase in revenue from Q3 of 2013 to Q3 of 2014. I’d say that’s pretty solid.

What’s the goal?

As a financial expert, I would say it makes a tremendous amount of sense to be debt free. The fewer debt payments you have, the fewer monthly obligations exist. I don’t really care about your credit, because my goal is for you to not have debt. Getting caught up in the score game only serves the bureaus desire to put you into debt.

I have never heard a single person say “I wish would have just borrowed money.” Yet, I have heard several thousand people express their regret from borrowing. You don’t have to borrow money. You don’t have to be good at borrowing money. Don’t accept the punch card.

The fact is that credit bureaus gather your data without your permission, then sell it to people trying to lend you money. All those pre-approved credit card offers you get in the mail? The information used to extend those credit offers is sold to banks without your permission. It’s like if there was an agency that gathered information about your health, and then sold the information about your struggles to Twinkie manufactures. My favorite part of all of this? When the credit bureaus sell identity theft protection products to consumers to protect data they never gave the bureaus permission to gather.

I’ll leave you two last statements to complete and evaluate on your own:

  1. My bank (credit card company) wants me to have good credit because…
  2. The credit bureaus, which are publicly-traded for-profit corporations, want me to have good credit because…

So is the aim good credit? Or is the aim debt?

6 thoughts on “The credit bureaus aren’t who you think they are

  1. You speak of freezing your credit is that something you can do and if so how does one go about doing that

  2. Pete if these guys are operating for profit why cant we just send them a letter or e-mail telling them to delete all information they hold on you.

    1. Because you agreed to their terms when you use credit cards and debit cards. Believe it or not, you’ve given your permission to give them the info. A letter to them won’t change that.

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