That data is then boiled down to a number ranging from 300-850 that estimates the riskiness of lending money to someone. They can decide the interest rates they pay and whether they get credit.
So, who owns your credit score and all the granular, personal data that goes into it?
You might be surprised to find that it’s not you. You may be even more surprised to find that data is often wrong, especially from a pandemic — and it’s being used in more places for more purposes than ever before.
This angered Massachusetts Senator Elizabeth Warren, a longtime critic of the banking industry. In a statement to CNN Business, Warren called the errors “scandalous.” Equifax needs to clearly explain who was affected and how this happened, and the company needs to help the customers who were ripped off.”
If the company’s name sounds familiar, in September 2017, Equifax disclosed that hackers had exploited a security flaw in its systems to gain access to the company’s customer data. The data is for about 145 million people, or about half of the adults in America.
But more than 50 small specialized agencies have sprung up that provide such data to potential employees, tenants and utility customers.
Credit data is being used more broadly than it was initially intended, consumer watchdog groups warn, sometimes quite slowly. The data of many people with the same name is often provided to the rental agency.
Between January 2020 and September 2021, the Consumer Financial Protection Bureau received 700,000 complaints against the three largest credit agencies.
More than 60% of all complaints in 2021 related to consumers reporting incorrect information on their reports.
For these reasons, some experts suggest more regulation, or a publicly run credit agency not trying to profit from personal data.
In a study on credit reports and their use for non-credit purposes, Chi Chi Wu, an attorney with the National Consumer Law Center, warned that there was ‘mission creep’ in how widely the data was used.
Some major utilities, such as gas, water or electric utilities, use credit scores to determine whether they require a security deposit from customers, for example.
Credit scores can predict consumer behavior when it comes to shopping, but can be misleading about whether people make good tenants or pay critical bills like utilities on time.
“Credit scores are often used as a measure of character, sometimes it’s just luck,” Wu said.
The pandemic has called into question the reliability of the data. Credit scores often don’t tell the whole story about a person, said Michael Pugh, president and CEO of Carver Bank, a New York City bank headquartered in Harlem.
Before the pandemic began, Carver Bank had extended credit to an appliance repair business that decided to expand into an installation business.
“He had already hired new employees and bought additional equipment when he suddenly had to close the business [because of Covid],” Pugh said in an email.
Over time, the business’s credit score declined as it depleted its savings, increased credit card usage, and took longer to pay its bills. Carver continued to extend credit and accept late payments. “They’ve come out the other side stronger,” he said, but it can take a significant amount of time to catch up on a credit report. The installation business was fortunate in that its bank was flexible — many other businesses were not.
Credit reports are being used more now, Woo said, because some believe they eliminate discrimination — “calculating that it’s a number, it’s just a computer program — but [discrimination] baked into the algorithm,” Wu said.
And there are serious disparities in credit scores by race. An Urban Institute report analyzing 2016 Freddie Mac data found that 50% of white households have credit scores above 700, compared to just 21% of black households. That gap has narrowed in the five years since the institute recently reported on the study, but for Native-American groups in particular, the disparity remains wide.
You cannot opt out
How can a system so flawed be so powerful?
There is no legal way to choose the best numerical picture of you that the credit agencies paint. Equifax executives testified before the Senate Commerce Committee in 2017 that Equifax owns customer data and its analysis and that “it’s part of the way the economy works.”
But, Wu said, “There’s a reason for that [errors] Keep going so they can get away with it — they’re an oligopoly, you can’t choose between them like you can with mobile carriers. If you want credit, “you have to deal with these three agencies.
As for the latest inaccurate data released by Equifax, unless you applied for a loan, credit card or other financial product in the March 17 to April 6 window, it’s hard to know if they had coding errors on the server that affected you. Until now.
What rights do consumers have? The right to know what is in their file. All consumers are entitled to a free annual disclosure upon request from credit bureaus nationwide, the CFPB says. If there are errors, dispute them over the phone and in writing — but be aware that there is a backlog in handling those complaints.
And make sure you check your report for the vacuum cleaner you never bought.