Monday, July 20, 2009

Even NPR Buys Into Banks' "Credit Score" Pitch

NPR’s Marketplace ran story a couple weeks ago about things to avoid charging on a credit card because banks or credit agencies might hold the charge against you if they don’t like the risk profile. I suspect this is not completely independent reporting. People involved in the banking industry actively promote “negative sell” ideas regarding their product. They want to sell loans. They say, “I don’t know if this product is for you unless our formula says it is.” You’re supposed to say, “Oh yes. The product is for me. I want to buy it!”

The banking industry has managed to get financial reporters to write articles about how worrying about your credit score is part of responsible personal finance. It is not. The credit score is based entirely on using their product (loans):
  • Timely loan payments
  • Outstanding loan balances
  • Amount of time using loans
  • Types of loans
  • Number of loans opened/applied for recently.
Of course using their product makes them like you.

Net worth, income, and cash flow are not part of the formula, but they are way more important than whatever benefit you get from banks liking you as a customer.

I have amazingly heard of people in disputes who are more worried about the other party getting negative information on their credit report than they are worried about the other party suing them and taking their money. I certainly don’t want people giving me a bad reputation, but spreading lies via the credit report is far more innocuous than actually taking my money.

Banks have done an amazingly good job convincing people that to be responsible you should buy their product.

I have no axe to grind with banks or credit agencies. My report contains only accurate positive info, and as far as I know, their score for me would be decent even though I don't use loans. I am very satisfied with the local banks my wife and I use for personal and business banking. My complaint is with the industry as a whole.

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