It’s 2021 and as the saying goes, “The more things change the more they stay the same.” If you’re old enough to remember the 1990s, beyond the bad hairstyles and crappy internet service, you would remember the constant TV ads promoting the American Express, Visa, MasterCard, and Discovery credit cards. You practically saw them on every channel 24/7 with all the lifestyle glitz and glamour that came with the ownership of each respective card.

What was not included in the commercial hype was how much these credit cards would affect the underlying system that would directly impact the quality of your life for decades to come–your credit score calculated by the top 3 credit reporting bureaus: Equifax (NYSE: EFX), Experian PLC (OTC: EXPGY) and TransUnion (NYSE: TRU).

What are Credit Bureaus you might ask? 

A credit bureau, also known in the U.S. as a “credit reporting company” or “credit reporting agency,” is a private organization (not a government department) that collects and researches individual credit information and sells it for a fee to creditors, so they can make decisions on granting loans. 

Their primary purpose is to ensure that creditors have the information they need to make lending decisions. Typical clients for a credit bureau include banks, mortgage lenders, credit card issuers, and other personal financial lending companies.

Source: https://www.investopedia.com/terms/c/creditbureau.asp

What’s a Credit Score?

Credit bureaus acquire their information from data providers, which can be creditors, debtors, debt collection agencies, vendors, or offices with public records (court records, for example, are publicly available). Credit bureaus then use a range of methodologies to calculate a person’s credit score based on this credit history.

The most common credit scoring system in the U.S. is called the FICO scores, created by the Fair Isaac Corporation in 1989 and ranges from 300 to 850 (A good FICO score, for example, is considered to be one in the 670 to 719 range). There are at least 19 commonly used FICO scores, and each is calculated differently with an eye toward different types of clients, allowing credit issuers to choose the type of credit score that best fits their inquiry. Credit bureaus then add the credit score to the information they’ve accumulated and issue a comprehensive credit report, which provides credit issuers with information that helps them determine credit approval and appropriate interest rates for borrowers. An individual with a higher credit score will likely have a lower interest rate on a loan.

Experian Credit Score Range

How your credit score is calculated

Tip: You are entitled to one free credit report every 12 months from each bureau, but you may have to pay to see your credit score.

Source: https://www.investopedia.com/terms/c/creditbureau.asp

How Credit Bureaus control your life?

While credit bureaus don’t make lending decisions, they are very powerful institutions in finance, and the information contained in their respective reports can have a substantial impact on an individual’s financial future. 

Please keep in mind these are private companies that use your data to generate a report that is sold to other companies, banks, and credit lenders. All too often, these reports contain inaccurate information that can negatively impact your score.

Tip: You can get your credit report fixed if it contains inaccurate or incomplete information:

• Contact both the credit reporting agency and the company that provided the information to the CRA.
• Tell the CRA, in writing, what information you believe is inaccurate. Keep a copy of all correspondence.

Tip: If you have a problem with credit reporting, you can file a complaint with the Consumer Financial Protection Bureau (CFPB). 

Having a low credit score (less than 630) from any of the 3 main credit bureaus can limit your ability to purchase a house or car, rent an apartment, acquire low-interest credit cards and/or loans, and even land a good-paying job. 

The proposition to end Credit Bureaus

In 2019 a paper was written and published by a think tank group named Demos proposing to replace our failed for-profit credit reporting system with a public credit registry that will benefit consumers and reduce racial wealth inequality. 

Demos proposes establishing a public credit registry housed in the Consumer Financial Protection Bureau. This publicly run credit registry will gradually replace the current for-profit corporate system and is designed to be responsive to consumer needs and equity concerns rather than the corporate bottom line. A public credit registry will develop algorithms that diminish the impact of past discrimination, deliver transparent credit scoring, provide greater data security and offer a publicly accountable way to resolve disputes. The use of credit information for non-lending purposes, such as employment, housing, and insurance, will be curtailed.

Source: https://www.demos.org/policy-briefs/establish-public-credit-registry

Fast forward to 2021, and the Biden Administration may be seeking ways to shut down credit bureaus over time and implement Demos’ proposal as a means to improve people’s access to credit and standardized calculations.

Here’s a great video explaining how this proposal would work and what it’ll mean for you.