Credit Scores: Fair or Unfair?

To weigh the system of credit ratings, the simplest path is pros vs. cons. Let's look at some factors that do figure into the credit rating, and then the ironic ones that do not.

Pro (Expensive)
1. Those that carry credit balances with timely payments have a high score.

Con
1. Those who pay cash and never incur debt have a low score or no score.
2. Those who have credit, but choose not to use it have lower scores.

Pro (Myth)
2. High credit scores are indicative of credit worthiness.

Con
3. High credit score can be maintained while living paycheck to paycheck.
4. Annual earnings are not calculated into a credit score.

Pro (Myth)
3. Inquiries do not hurt your credit rating.

Con
5. More than 3 credit inquiries in six months, including comparison shopping for a loan, detracts from the credit score.
6. More than 6 inquiries within one year, including insurance and employment inquiries, detract from the credit score.

So far, the cons are outweighing the pros two-to-one. The fact is bared that the current calculation of credit scores hurts more innocent people than it helps. Here are some examples:

Cash and Carry
After spending the first 25 years of his life paying for everything he owned by saving and paying in full, John Creditseeker finds out that he does not qualify for a mortgage when he marries his college sweetheart. Despite his showing a substantial income and no debt, credit for the home will not be issued because the bank does not see his credit worthiness.

Catch 22
John's wife, Jill, applies for a credit card after the wedding to have in the event of an emergency. Jill is denied. Why? Like her love, she has always bought with her checkbook. Living within her means effectively does not make her a candidate for credit. How should she get credit, if she does not have any in the first place?

Mistakes happen...
Except at the credit bureau. To have negative information put onto a credit report requires a bill and a "debtor's" social security number. Removal of erroneous negative information requires an act of God. If a creditor misreports your address, it remains on your credit report permanently. Removing inaccurate personal information requires many affidavits. Ironically, the creditor did not have to jump through rings of fire to get the negativity there.

So what are the rewards of the credit system? Staying in debt, but timely paying interest will win you a great credit score. Are you scratching your head? Here's why.

Banks issue you credit. Banks pay the credit bureau for your credit report (profit). You pay interest to the bank (profit). If you pay off your credit before the bank makes back the money they spent on paperwork and your credit rating, your credit suffers...you are hurting their bottom line by protecting your own.

Although the credit report will list the last employer that someone else (not you) reported to them, no where in any of their equations is a variable to be filled with your salary.

By all measures, the only entities that benefit from the current credit rating systems are those who profit from it and those who pay to keep a high credit score (interest).

How fair can a credit rating calculation system be that never once considers your ability to pay? In a word: Not.

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