Discredited

ALMOST ANY COVERAGE OF THE U.S. CREDIT REPORTING AGENCIES begins by mentioning how central credit reports are to life in the United States. Your credit report is a history of your borrowing and payment record, used by companies like Fair Isaac Co. (the creator of the commonly used FICO credit score) to boil you down to a three-digit number. In a debt-based economy like ours, your credit reports and credit score decide whether you can get a loan to buy a car, start a business, or buy a house. It also strongly influences the interest rate a financial institution will charge you to borrow its capital.

But it’s not just your borrowing life that is hostage to these reports. It’s your whole economic existence—landlords today frequently pull your credit report from one or more of the bureaus before deciding to offer you a lease, and some employers even make them part of hiring decisions. As a 21st-century American, you really can’t afford to have a bad credit report.

Credit scores and the reporting bureaus in their present form trace to the 1950s, when agencies began using computerized scores to estimate the probability that a borrower would default, or fail to repay, a loan. But the industry began to grow more rapidly after the Equal Credit Opportunity Act of 1974, which forbade discriminating against credit applicants based on race or religion, which meant brokers needed a legally viable way to screen mortgage applicants. Credit scores appear technocratic and based on ability to repay, and the poor are not a legally recognized protected category.

Unfortunately, this now-crucial industry is composed of an oligopoly of companies that use money-saving automated processes, which in turn create a gigantic number of report errors. (Two recent surveys by Consumer Reports and WorkMoney found that nearly half of all credit reports contain errors.) They also have a history of breaking agreements they made in the face of scandals, like their promises to investigate report errors, to provide a free report per year without pushing other products, or to offer their new apps without steering consumers to paid subscriptions.

This article will review the function of this market, its structure, efforts to reform it, and its long record of massive, wall-to-wall screwups.

Oligopolycule

The consumer credit bureaus, which sound governmental but are in fact for-profit corporations, are a naked oligopoly composed of three giants: Experian, Equifax, and TransUnion. They compile your credit history, provide reports on it to lenders considering you for credit, and give the information to FICO, which generates a consumer’s credit score. FICO’s long-time credit score monopoly is now challenged by VantageScore, a competitor created by the big three bureaus themselves. This constitutes an oligopoly feeding your debt information to a duopoly, a market with a mere two firms. Their main regulator is the now-endangered Consumer Financial Protection Bureau, which has fined them millions of dollars over recent years for automated practices and high error rates (see below).

The industry itself has been suffering in recent years due to changes in the sector, such as the Fed’s rate-hiking cycle lifting borrowing costs to the detriment of home sales and mortgages, which decreases the volume of credit inquiries that provide the oligopoly’s income. In 2023, the shares of the agencies took a beating because of high interest rates plus a broader decrease in consumer lending—especially from regional banks, particularly for lower credit tiers—further depressing demand for their incompetent services.

The firms themselves are notorious for typical oligopolist abuses. TransUnion, for example, announced in 2023 plans to lay off U.S. employees, with the aim of “transitioning more roles,” as they put it, to Indian, Costa Rican, and South African call center sweatshops, which they call “capability centers.” Equifax is today often most associated with its gigantic 2017 data breach, the second biggest ever in the United States, with incredibly extensive data stolen from 143 million customers including full names, addresses, birth dates, Social Security numbers, and even drivers’ license numbers. It had a further scandal in 2022 when it admitted to issuing millions of incorrect scores to lenders, which it called a “technology coding issue.” The CEO remarked at the time, “The impact is going to be quite small…not something that’s meaningful to Equifax.”

Credit Distorts

The industry has become notorious for hideous rates of errors on consumer credit reports, and even more so for its alleged process for fixing those errors. The New York Times reports that “Common mistakes include loans that have been repaid but appear as unpaid; debt incorrectly reported as being in collection; incorrect personal information and addresses; and ‘mixed’ files, in which information from a different person appears in your credit report.”

One infamous case involved a nurse, Julie Miller, who was plagued by one of these mixed files, after her profile was inadvertently merged with someone else’s. This occurs because the automated computer systems compiling reports allow information to be added to a person’s credit report even if the Social Security numbers or birth dates don’t match. A few digits off in a Social Security number is considered good enough by these algorithms. The reporting oligopoly would rather have too much information in your report than too little, even if that introduces nightmarish errors that are then up to consumers to find and fix.

Miller did what you’re supposed to do in this ludicrous privatized system, which is a mountain of homework. As consumer advocates recommend, she regularly checked all three of her credit reports. Finding the errors, she initiated Equifax’s dispute process seven times, receiving form letters back demanding more proof of her identity. Repeated sending of pay stubs, W-2s, insurance bills, and state IDs produced nothing. So in 2013 she sued, and in the end was awarded a massive $18 million by a jury (later reduced by a judge, as is common in civil litigation).

Her experience in the Sisyphean world of credit report dispute resolution owes to the fact that the process is largely automated, and what human oversight is present is typically outsourced by the major bureaus to overseas workers in the developing world. These workers must boil the dispute down to short numerical codes instructing the computer to make changes, but this system can’t manage a full mixed report. This does lead to litigation like Miller’s, but since most settlements are for relatively modest amounts, the industry sees that cost as preferable to the larger expense of actual human involvement in creating the millions of reports. Indeed, while federal law requires the credit reporting bureaus to “reasonably” investigate disputes, Miller’s litigation found that Equifax did not investigate at all, despite her endless requests, although the other two major bureaus did indeed resolve her problem—after she herself noticed it and requested action. The Federal Trade Commission estimated in a 2013 study that one in five consumers has an error in at least one of their credit reports.

In 2015, the agencies settled a case brought by the New York State attorney general that required them to use more human employees in their mostly automated dispute resolution processes. The digital codes created by workers overseas are often sent, along with documentation, to the creditor—the credit card issuer or bank whose loans are at issue. If the creditor confirms the information, the “investigation” ends. The 2015 settlement required that cases of mixed credit files must be reviewed by trained employees.

And yet, by 2022 the giant agencies were under investigation once more, this time for pandemic-era payment-deferment programs. During the confused tumult of early Covid, banks instituted forbearance and deferment policies for borrowers. Credit reports were supposed to show such deferred loans as current despite payments not being made, but many borrowers reported to the Consumer Financial Protection Bureau (CFPB) that their student loan or credit card debts were being counted as delinquent, beating up their credit ratings.

The agencies blamed the lenders, who often did provide incorrect data about the status of these loans, and claimed borrowers were just trying to dispute negative information on their report, even if it was true. Congressional Democrats claimed that the agencies began using automated processes to find and dismiss complaints submitted by third parties, like “credit therapy” startups, which are firms claiming to offer measures to improve low ratings for those with bad credit. The agencies told the CFPB that in 2019 they provided relief to consumers in about 25% of dispute cases, but by 2021 this was down to under 2%.

Life and Debt

Much was made of recent changes by the ratings oligopoly to delay the appearance of medical debt on consumer reports by six months. With medical debt being one of the largest and most cruel forms of debt, this move looks uncharacteristically decent coming from the big agencies. But on examination, it turns out that this is due to yet another corporate oligopoly—the insurance industry. When you undergo medical care, your provider (a doctor’s office, clinic, or hospital system) bills your insurer, which then takes time to decide if your care was covered by your plan and was medically necessary, refusing payment or clawing back money if they decide you and your doctor were just ordering frivolous medical work to pass the time.

So, for the days or weeks that it takes your employment-based health insurer’s corporate bureaucracy to decide whether it feels like paying for the health care that we pay them to supposedly cover, some credit reports will designate that still-unpaid bill as delinquent, dinging the consumer’s credit score for something utterly out of their hands. And dealing with this kind of problem is a complete nightmare—hours on the phone and online with a corporate bureaucracy, gigantic stress created by a software program in order to save costs for the rich execs and company investors.

By instituting a pause on reporting these (already abominable) medical debts for six months, extended to a year in 2022, the rating oligopoly recognized that the insurance oligopoly’s long processing times required some time to determine what debt was owed. In 2024 the CFPB banned medical debt from credit reports wholesale, but with the new administration, which is dominated by Wall Street figures who want hard-nosed debtor information, I don’t give it much chance of surviving Trump and DOGE’s plans to gut the agency.

If ever an “industry” needed a public option, it’s this monstrosity. This system traps innocent working-class people in a corporate software hell you can only escape from by bashing your head against automated systems that may well not fix the problem. Meanwhile every transaction you attempt will be blocked or made more expensive by this corporate bungling.

Perhaps in the future, a revived CFPB could develop an arm that lenders are obliged to report late and on-time payments to, based on accurately recording people’s credit record rather than catering to banks and selling dubious services. Better yet, a publicly run economy could avoid personal debt in general, recognizing that the capital loaned by all these banks and credit card networks represents wealth created by the workforce, and should be disbursed as universal
services rather than rent-bearing instruments for capitalists.

Now that would be a credit score indeed.