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The Credit Conundrum

Chad Evanson
Jul 21, 2014

American consumers with poor credit face quite a conundrum and most of them don’t even know it. Consumers all share one basic need: Good credit. As well all know, good credit allows consumers to obtain credit and loans at the best interest rates. That means a consumer with good credit can shop around for the best rates. They have choices. Bad credit equates to fewer choices for the consumer. Most lenders prefer consumers with good credit and offer such consumers the best interest rates and lending terms. But, not everyone balks at consumers with bad credit. In fact, one group in particular prefers consumers that have poor credit: the credit bureaus. America’s top three credit bureaus–Equifax, Experian and TransUnion–all collect consumer data on more than 200 million consumers in the United States and compile that information into a credit report.  Credit data is sold to various types of lending institutions with the credit bureaus putting a higher price tag on those consumers with poor credit. In turn, the credit bureaus generate more revenue from consumers with bad credit. Credit bureaus in a Catch 22? Credit bureaus are charged with providing lenders with an accurate picture of a consumer’s credit history. But, what many people may not realize is that their credit reports may include inaccuracies that could have an impact on their credit scores. Numbers released from a Federal Trade Commission (FTC) study in early 2013, which studied 1,000 consumers and 3,000 credit reports, found that an estimated 25 percent of all credit reports contain at least one inaccuracy. That’s a 20 percent error rate. Five percent of the errors on consumers’ credit reports have been found significant enough to put them into a different credit category, according to a 2004 National Association of State Public Interest Research Groups study. The inaccuracies significantly impact approximately 10 million consumers, according to CNN1, each of whom are losing opportunities for better interest rates and better borrowing terms. In some cases, the lower credit scores, due to the errors, result in consumers being denied credit or loans altogether. Therein lies the Catch 22: The credit bureaus sell lending institutions credit data relating to the consumer’s financial history. Consumers with poor credit come with a greater price tag because lending institutions must charge a higher interest rate to consumers with sub-par credit. That creates a dilemma for the credit agencies, which are supposed to provide accurate information but which profit off of poor credit, some of which is the result of inaccuracies on consumers’ credit reports. Ready, set … inaction? Credit agencies have little incentive to fix errors on a consumer’s credit report because they profit off of consumers with poor credit, which makes it extremely difficult for a consumer to convince a credit bureau to fix errors. An accurate credit report could result in a higher credit score, which means the credit bureaus won’t make as much money off of that consumer.  Some consumers have even resorted to legal action to get the credit bureaus to fix inaccuracies. Approximately 2,249 Americans filed a lawsuit against one of the three credit agencies in 2012, according to CNN and WebRecon, the highest number of lawsuits in a year to date. What’s more, with more than 40 million Americans with at least one error on their credit report, the credit agencies will need the manpower to investigate, substantiate, and rectify those mistakes by either hiring more employees or by adding hours to their current employees’ schedules. Either move is going to cut into the organization’s profits. The path to better credit Many consumers either do not have the time or the specialized knowledge necessary to clean up their credit report in an effort to boost their credit score. A reputable credit repair agency can make the process of dealing with the credit agencies easier and can produce results. Mortgage professionals, in an effort to help their clients raise their credit scores to qualify for a home loan can refer consumers to a reputable credit repair agency that can help the consumer become a qualified borrower. A reputable credit repair agency assists consumers in rectifying errors on their credit report and can offer sound advice on how to raise their credit score. Essentially, a credit repair agency’s central purpose is to help consumers navigate the often rough road of repairing credit and to save consumers both time and money in what could ultimately be a lengthy process, if working without the assistance of a credit repair professional. As in any industry, scammers will pose as credit repair professionals and will prey on consumers who desperately want to rebuild their credit. A referral from a mortgage professional can help a consumer feel more comfortable about working with a particular credit repair agency. A reputable credit repair agency will always be licensed and bonded and will offer a money back guarantee. Consumers should also check with the Better Business Bureau to ensure the credit repair agency is a BBB Accredited Business and has an A+ rating. Chad Evanson is a principal of Prime National Inc. “The fastest credit repair in the business: 30 days.” He may be reached by phone at (800) 795-PNCR or e-mail [email protected] Footnote 1—Ellis, Blake. "Millions of Credit Reports Have Errors." CNNMoney. Cable News Network, Feb. 11, 2013. Web. 
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