Tag Archives: three major credit bureaus

Using Fear of Identity Theft to Fix the Credit Industry

According to an article in the New York Times, there is an effort ongoing by the Information Card Foundation to establish a central manager for online accounts. On the surface, it seems like this might help block security holes in online accounts by making phishing mostly obsolete and eliminating the use of browser password tools. However there is more to this initiative than to protect people from fraud.

Equifax, one of the three major credit bureaus, is a member of this foundation. They might be interested in the data related to financial transactions. Further, Google, Microsoft and Oracle all are heavily involved in writing search software, something that would be necessary to extract useful data from the service’s logs.

The motivation for a move like this is that there is little confidence in the credit bureaus. Lending institutions have drawn back their willingness to lend because they don’t have an accurate picture of who it is they are lending to. While a lot of the credit problems were caused by irrational expectations with regards to the future values of homes, there was also rampant credit rating manipulation in the sub-prime market where credit repair services were and are being used to manipulate the system. One strategy is to contest legitimate black marks in your credit report. If the credit bureau doesn’t investigate in 30 days , they have to remove it.

Lenders were avoiding looking too carefully at those they were lending to because they wanted to do more business and mistakenly thought there was little risk. Now, they still want to do more business so they can make profit, but they still feel the pain from earlier mistakes. A credit bureau that were to differentiate itself by offering more information to skittish lenders might seize more business in an environment which is probably not very good currently.

I am not fond of the notion of a centralized system keeping track of my activity online so I’m not fond of this “product”. However, it is obvious that the credit bureaus have to improve the methods they use for compiling credit ratings. They currently put too much weight on having had significant debt in the past, which makes someone that has had modest loans look an awful lot like someone with a checkered past, unreliable. They need to get a better look into all of the times someone pays a bill and a better idea of how someone handles their finances. This will require a better system. Maybe it will be this one, maybe another.