The ads keep coming: Let your credit history slip and so, too, will your lifestyle. Once you're branded with a poor score, it's off to the bad job, the bad apartment, the bad insurance, the bad life.
It is the scarlet letter of the information age.
But the credit-rating mega-industry makes some big assumptions when it sells credit as an indicator of character.
After all, what does poor credit really have to do with a person's ability to be a good worker or a safe driver? And given that credit can be so easily savaged by job loss, illness or divorce -- events we're all susceptible to -- what can it actually say about a person's propensity to steal or to lie?
The answer, critics say, is nothing. The evidence is slim to none that credit history accurately predicts any behavior outside of borrowing.
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In the end, critics say, the practice unfairly punishes people who've hit hard times and broadly discriminates against minorities and the poor, whose scores tend to be lower. Consumers are left with little recourse other than to keep an eye on their credit reports, often by paying the same bureaus that are peddling the data (the reports are available once a year for free.)
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In the beginning, a good tool for lending
Few people would argue that the use of credit scores for its original intent -- to assess risk in lending -- is not a good thing. It wasn't too long ago that bank officers decided whom to trust based merely on a file folder and an opinion.
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By contrast, the credit score predicts future behavior based on actual past behavior, which is considered a reliable model. It is blind to factors such as race, gender and marital status. As a result, more people can gain access to credit, while lenders are better able to price risk.
As the credit bureaus consolidated into the big three (despite the title, they are all for-profit companies) and information management dropped in price, the bureaus started tailoring their credit data to outside industries and making sales calls.
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It's unclear exactly how frequently companies rely on credit information, because they don't disclose the information, citing reasons related to competition. (While credit bureaus and private companies may see, and profit from, consumers' private information, they're not about to let consumers see theirs.)
In general, though, credit histories are fast becoming standard for people to meet these necessities:
Employment: In 2006, 42% of employers conducted credit histories as part of background checks for new employees, according to the Society for Human Resource Management. That's up from 35% in 2003 and 19% in 1996.
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The credit bureaus defend their use of credit reports, saying they're a valuable fraud-prevention tool when used in conjunction with other information. Credit reports can verify past jobs and cities of residence. They show whether bills are paid on time and whether an applicant owes money. They can even reflect spending sprees.
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Employers also worry that a high debt load might make an employee likely to steal or accept bribes.
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Auto and homeowners insurance: Almost all insurance companies incorporate credit history into their underwriting, despite the objections of insurance-agent associations, which say the practice unfairly and illogically raises rates for struggling customers.
The credit bureaus and insurance companies say there's a correlation, backed by independent studies, between poor credit scores and an increased number of claims. But they admit that they have no idea why the pattern exists and can't prove that one causes the other. They say it's an added risk-management tool that ultimately allows insurers to reduce prices for other drivers.
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Legislators in 20 states have introduced bills to prohibit the use of credit history in insurance underwriting. But very few states -- including Hawaii, California and Massachusetts -- currently prohibit the practice.
Credit scoring may have benefited insurers to the tune of $67 billion from 2003 to 2006, according to a 2007 study by the National Consumer Law Center.
In 11 states, legislators have restricted the use of credit history for employment. Many would like to see it banned altogether.
Credit scores are famously riddled with errors, with discrepancies of as much as 100 points among the bureaus. The reports don't reflect on-time payments to utility companies. Credit histories are routinely damaged when bad things happen to good people. And, most importantly, there simply isn't any evidence that people with heavy debt loads make bad employees or greater insurance risks.
Piper Hoffman, a partner at Outten & Golden, an employment law firm in New York, gets calls every month from workers at all income levels who have lost job offers after a credit check. Some had already been working on a temporary basis and were well-liked.
One man, an executive, had damaged his credit after taking out a second mortgage to pay his mother-in-law's medical bills. "And he found the job offer being withdrawn because essentially he was being a good son-in-law and taking care of his family," Hoffman says.
The assumption, she thinks, is that people with debt will embezzle funds, "which is another way of saying 'we don't trust poor people.' And there's no evidence of that."
In what appears to be the only definitive study on credit history and job performance -- it's difficult to get access to personnel data -- an Eastern Kentucky University professor found no correlation between the two. In fact, the only finding of any statistical significance was the opposite: The workers with poor credit history were more likely to work hard.
"I would be really worried if companies were making judgments about a person's character based on their credit report," says a study co-author, Jerry Palmer, an associate professor of industrial psychology. "I would not use them."
What can you do?
You have to consent to a credit check, but a company can legally reject you for employment or housing if you refuse.
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If there is a problem, add the permitted 100-word explanation to your credit report, and be upfront with people. Human-resources managers say they are sensitive to the fact that circumstances don't define a person in full.
If you believe a job denial based on credit qualifies as discrimination, file a complaint with the U.S. Equal Opportunity Employment Opportunity Commission or contact an attorney. Across the country, lawyers are trying to ban the practice.
It hasn't gotten into court yet, Hoffman says, "but I believe that once we get to that point, we will win."