Critics claim that credit reporting flaws and unreliability can make consumer credit reports and credit ratings untrustworthy. Credit reporting agencies (CRAs) can assist lenders and other businesses, and help you catch identity theft, but inaccurate records may prevent you from getting a loan or credit card despite your financial responsibility.
Calculating Credit Scores The widely used Fair Isaac and Company® (FICO) system calculates your score by weighting your payment history at 35 percent, amounts owed at 30 percent, the length of your credit history at 15 percent and new credit and types of credit used each count at 10 percent.
While they do use FICO, the three major CRAs developed another scoring method, the VantageScore® system. VantageScore has a similar percentage breakdown, counting recent credit for 30 percent, payment history for 28 percent, utilization for 23 percent, available credit for one percent and balances and depth of credit for 9 percent each.
CRAs (for example Equifax®) may use their own scoring methods. Because agencies' methods differ, scores may vary widely, and any incorrect information can result in a misleading score.
Flaws in the Credit Scoring System Some states allow low income families to keep utilities running without penalty when payments are late so they can use the saved money for food and other necessities. However, your credit score may penalize you for a late payment, even if the utility provider doesn't.
Additionally, renters who stop paying rent under state legislation that grants them the right to do so if landlords haven't maintained their apartments may face credit score penalties for late payments.
You may have a low credit score if you have no credit history (or no recent credit history), so the young and old may have difficulties securing funds even if they pose little risk to lenders. For example, you may have no recent credit history because you paid off all of your loans early.
Credit Scoring Errors A 2004 survey by the U.S. Public Interest Research Group examined credit reports for adults in over 30 states. Seventy-nine percent of the reports examined included mistakes of some kind, and 25 percent had serious errors that could prevent the individual from receiving credit.
Some credit scores keep negative information or closed accounts posted past credit reporting time limits by mistake, which can affect your score further than legally allowed.